Tyson Corporation reported pretax income from operations in 1997 of $80,000 (the first year of operations). In 1998, the corporation experienced a $40,000 pretax loss from operations (NOL). Management is very confident the firm will have taxable income in excess of $50,000 in 1999. Assume an income tax rate of 20 percent in 1997, increasing to 30 percent in 1998 and thereafter. Tyson has no other temporary differences.
Required:
1. Assess Tyson's income tax situation for 1997 and 1998 separately. How should Tyson elect to handle the loss in 1998? Which carry back/carry forward option should Tyson choose?
2. Based on your assessments in (1), give the 1997 and 1998 income tax entries that Tyson should make.
3. Show how all taxrelated items would be reported on the 1997 and 1998 income statement and balance sheet.