Hayes Co. reported the following pretax financial income (loss) for the years 2017-2021.
2017................................$240,000
2018.................................350,000
2019...................................90,000
2020...............................(550,000)
2021.................................180,000
Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 34% for 2017 and 2018, and 40% for 2019-2021. Assume the carryback provision is used first for net operating losses.
Instructions
a. Prepare the journal entries for the years 2019-2021 to record income tax expense, income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence it is probable that one-fifth of the benefits of the loss carryforward will not be realized.
b. Prepare the income tax section of the 2020 income statement, beginning with the line "Income (loss) before income taxes."