Question: Baxter Company began operations in 2009 and was profitable through 2012, during which time the tax rate was 30%. At the end of 2013, Baxter

Baxter Company began operations in 2009 and was profitable through 2012, during which time the tax rate was 30%. At the end of 2013, Baxter reported a pretax operating loss of $135,000 for both financial reporting and income taxes. Because the tax rate was increased to 40% in 2013, Baxter elects to forgo any carryback of the operating loss. In 2014, Baxter reported pretax operating income of $150,000.

Required:

1. Prepare Baxter's income tax journal entry at the end of 2013.

2. Prepare the lower portion of Baxter's 2013 income statement.

3. Explain why Baxter elected to forgo any carryback in 2013.

4. Prepare Baxter's income tax journal entry at the end of 2014.

5. Prepare the lower portion of Baxter's 2014 income statement.

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