Reference no: EM132323821

Question

Colorado Company has provided you the following information.

Year Taxable income Income tax rate

2014 $390,000 35%

2015 $320,000 37%

2016 $400,000 40%

2017 ($1,200,000) 40%

Colorado Company has decided to use the loss carryback and carryforward provision as a result of the year 2017 loss. The enacted tax rate remains at 40% after year 2017. Colorado Company has determined that a valuation allowance is not necessary.

Prepare the journal entry on December 31, 2017 to record the carryback and carryforward decision.

$320,000 + $400,000 = $720,000 * 40% = $288,000

$1,200,000 - 320,000 - $400,000 = $480,000 * 40% = $192,000

Date Account titles Debit Credit

12/31/2017 Income tax refund receivable $288,000

Income tax expense (carry back benefit) $288,000

12/31/2017 Deferred tax asset $192,000

Income tax expense (carry forward benefit) $192,000