Refer to the information for Riley Inc. in E18-23.
In Exercise 23
Year Accounting Income (Loss) Tax Rate
2012............................$ 120,000....................34%
2013................................90,000....................34%
2014.............................(280,000)...................38%
2015..............................220,000...................38%
Instructions
(a) Assume that Riley Inc. uses a valuation allowance to account for deferred tax assets, and also that it is more likely than not that 25% of the carry forward benefits will not be realized. Prepare the journal entries for 2014 and 2015.
(b) Based on your entries in part (a), prepare the income tax section of the 2014 and 2015 income statements, beginning with the line "Income (loss) before income tax."
(c) Indicate how the deferred tax asset account will be reported on the December 31, 2014 and 2015 statements of financial position.
(d) Assume that on June 30, 2015, the enacted tax rates changed for 2015. Should management record any adjustment to the accounts? If yes, which accounts will be involved and when should the adjustment be recorded?
(e) Repeat part (c) assuming Riley Inc. follows IFRS.