1. In 2014, its first year of operations, Kimble Corp. has a net operating loss of $800,000 when the tax rate is 30%. In 2015, Kimble has a taxable income of $350,000 and the tax rate is still 30%.

Suppose Kimble Corp.'s management thinks it is more likely that loss-carrying will not happen in the near future because it is a new company (this is before 2015 results of operations are known).

Instructions

(a) What are the entries in 2014 to record the tax effects of the carryover loss?

(b) What entries would be made in 2015 to record current and deferred income taxes and to recognize the carryover loss? (Assume that by the end of 2013 it is more likely than not that the deferred tax asset will be realized.)

2. Hunt Co. at the end of 2015, its first year of operations, prepared a reconciliation between pre-tax financial income and taxable income as follows:

Financial income before taxes $750,000

Estimated tax-deductible warranty expense upon payment of 1,200,000

Extra amortization (1,650,000)

Taxable income $300,000

The estimated warranty expense of $800,000 will be deductible in 2016, $300,000 in 2017, and $100,000 in 2018. Use of depreciable assets will result in taxable amounts of $550,000 in each of the next three years.

Instructions

(a) Prepare a table of future taxable and deductible amounts.

(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2015, assuming an income tax rate of 40% for all years.

Answer rating: 100% (QA)

1 a Entries in 2014 to record the tax effects of the carryover loss To record the tax effects of the carryover loss in 2014 the following journal entr... View the full answer