Reference no: EM132968375
Capa Solo Inc. follows IFRS and reported the following taxable incomes/losses and tax rates for the first five years ended December 31:
General Information
2016: Taxable income (loss) = $50,000 Tax rate = 25%
2017: Taxable income (loss) = (400,000) Tax rate = 40%
2018: Taxable income (loss) = $100,000 Tax rate = 34%
2019: Taxable income (loss) = $230,000 Tax rate = 34%
2020: Taxable income (loss) = $620,000 Tax rate = 42%
Capa Solo Inc. had decided to always first carryback losses in any given year before carrying them forward. All tax rate changes were enacted as of the beginning of the year and these rates were not known until the year of change.
Problem i) Prepare the journal entry/entries on December 31, 2017 to record only the loss carryback and/or loss carryforward for the loss in 2017. Assume there are no uncertainties about the realization of the net loss reported at December 31, 2017 and that it was more likely than not for it to generate profits in the years following any loss.
Problem ii) Now assume that it was expected in 2017 that only 60% of the losses determined as per the assumptions in i) above, could be used within the carryforward period. Prepare the journal entry required to be made on December 31, 2017 to record this situation.