At the end of 2007, Keil Company reports a pretax operating loss of $80,000 for both financial reporting and income tax purposes. Prior to 2007 the company had been successful and had reported and paid taxes on the following pretax financial income and taxable income: 2004, $37,000; 2005, $50,000; and 2006, $54,000. The company had been subject to tax rates of 20% in 2004, 25% in 2005, and 30% in 2006.
Required
1. Prepare the income tax journal entry of the Keil Company at the end of 2007.
2. Prepare the lower portion of Keil’s 2007 income statement.