Alliance Inc. reports the following incomes (losses) for both book and tax purposes (assume the carryback provision is used where possible):
Year Accounting Income (Loss) Tax Rate
2011.............................$ 120,000...................25%
2012.................................90,000...................25%
2013..............................(280,000)..................30%
2014.................................40,000..................30%
The tax rates listed were all enacted by the beginning of 2011.
Instructions
(a) Prepare the journal entries for each of the years 2011 to 2014 to record income taxes, assuming at December 31, 2013, that it was more likely than not that the company would not be able to benefit from the remaining losses available to carry forward.
(b) Prepare the income tax section of the income statements for each of the years 2011 to 2014, beginning with the line "Income (loss) before income tax."