Reference no: EM132638961
PROBLEM 1- Meyer reported the following pretax financial income (loss) for the years 2019-2022:
2019 $350,000
2020 120,000
2021 (570,000)
2022 130,000
Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate is 21% for all years.
REQUIRED -
(1) Prepare journal entries for 2021 and 2022 to record the current portion and the deferred portion of income taxes, assuming that based on the weight of available evidence, it is more likely than not that one-fifth of the benefits of the loss carry forward will not be realized.
(2) Prepare the income tax section of the 2021 income statement beginning with the line "Income (loss before income taxes."
PROBLEM 2 - In its first two years of operations, GraNOLa Corporation reports a net operating loss (NOL) of $500,000 for 2021 and taxable income of $70,000 before any NOL carry forward for 2022. GraNOLa has a 25% tax rate.
As of the end of each year, cumulative temporary differences are:
Cumulative temporary difference at December 31 2021 and 2022, giving rise to future taxable amounts of $230,000 and $240,000, respectively.
Cumulative temporary difference at December 31, 2021 and 2022, giving rise to future deductible amounts of $95,000 and $120,000, respectively.
Assume that, based on the weight of available evidence, it is more likely than not that $100,000 and $64,000 at the end of 2021 and 2022, respectively, of future deductible amounts and loss carry forwards will not be realized.
Required - Prepare GraNOLa Corporation's journal entries for the current and deferred portions of income taxes for 2021 and 2022.