Roman's Inc Limited provided the following income (loss) information for the first five years of its operations.
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Question:
Roman's Inc Limited provided the following income (loss) information for the first five years of its operations. Roman's does not have any GAAP (Book) – Tax differences so that reported income per books is equal to taxable income on the tax returns.
Year | Income (Loss) | Tax Rate |
1 | $130,000 | 40% |
2 | 40,000 | 35% |
3 | (380,000) | 30% |
4 | 150,000 | 30% |
5 | 200,000 | 30% |
REQUIRED: (Do not consider the temporary provisions under the CARES Act)
- Assuming that Roman's is subject to the Federal NOL Rules, prepare the journal entries to account for income taxes in Years 3, 4 and 5 and determine the amount of the net loss after tax in Year 3. Roman's management indicated that it is more likely than not that all the future tax benefits will be recovered.
- Assume that Roman's is filing in a state with tax laws that permits a three-year carryback and a five-year carryforward with no income limitations, prepare the journal entries to account for income taxes in Years 3, 4 and 5 and determine the amount of the net loss after tax in Year 3. Roman's management indicated that it is more likely than not that all the future tax benefits will be recovered.
- Repeat Part (b) for Years 3 and 4 ONLY, but now assume that only $140,000 of future taxable income is expected.
- Using the information provided in Part (c), compute Roman's Effective (Actual) Tax Rate and prepare the footnote reconciliation to reconcile the Federal Tax Rate to the Effective (Actual) Tax Rate in both dollars and percentages.
Related Book For
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I
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