The pretax financial income (or loss) figures for Whispering Company are as follows. 2015 $164,000 2016 275,000 2017 86,000 2018 (164,000) 2019 (390,000) 2020 113,000 2021 98,000 Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 25% tax rate for 2015 and 2016 and a 20% tax rate for the remaining years. Prepare the journal entries for the years 2017 to 2021 to record income tax expense and the effects of the net operating loss carryforwards. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

Answer and Explanation:

The journal entries are shown below:

On 2017

Income Tax Expense $17,200 ($86,000 * 20%)

To Income Tax Payable $17,200

(Being the income tax expense is recorded)

On 2018

Income Tax Refund Receivable $32,800 ($164,000 * 20%)

To Income tax refund due to loss carry back $32,800

(Being the refund receivable is recorded)

On 2019

Income Tax Return Receivable $17,200 ($86,000 * 20%)

To Income tax refund $17,200

(Being the refund receivable is recorded)

Deferred Tax Asset $60,800 [ (390,000 - $86,000) * 20%]

To income tax refund $60,800

(Being the refund receivable is recorded)

On 2020

Income Tax Expense $22,600 ($113,000 * 20%)

To Deferred Tax Asset $22,600

(Being the income tax expense is recorded)

On 2021

Income Tax Expense $19,600 ($98,000 * 20%)

To Deferred Tax Asset $19,600

(Being the income tax expense is recorded)