Prepare the journal entries

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Question - Parker Inc. reports the following pre-tax incomes (losses) for both financial reporting purposes and tax purposes:

Year

Accounting Income (Loss)

Tax Rate

2018

$20,000

25%

2019

50,000

20%

2020

(150,000)

20%

2021

120,000

20%

The tax rates listed were all enacted by the beginning of 2018. Parker reports under the ASPE temporary difference method and carries loss back first.

Required -

a) Assume that it is more likely than not that the all carry forward benefits will be realized. Prepare the journal entries for 2020 and 2021.

b) Based on your entries in part (a), prepare the income tax section of the 2020 and 2021 income statements, beginning with the line "Income (loss) before income tax."

c) Notwithstanding the assumption in a), assume that at end of 2020, Parker assessed that it is more likely than not that 50% of the carry forward benefits will not be realized. Parker uses valuation allowance account. Show the journal entry necessary for 2020 deferred taxes and the deferred tax asset account reported on the December 31, 2020.

Reference no: EM132833491

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