Reference no: EM133525427
Case Study: In the years 2022 through 2024 Brayne Corporation reported a total of $359,000 in taxable income. The enacted tax rate during those years was 38%. At the end of 2024, Brayne reported a deferred tax liability related to capital assets. The net book value of these assets was $800,000, while the UCC (tax value) was $630,000 at the end of 2024.
During 2025, Brayne Corporation recorded an accounting loss of $536,000. This included depreciation expense of $50,000. However, no CCA was allowed as a tax deduction in 2025. In 2025 the enacted rate changed to 40% for 2025 and all future years.
In 2026, Brayne reported accounting income before tax of $450,000. Depreciation of $50,000 was equal to the CCA claim.
Required:
The company has adopted the policy of claiming tax loss carryback benefits, when available, before carrying forward tax losses.
a) Provide all necessary income tax related journal entries for 2025 and 2026 assuming the benefit relating to the 2025 loss carry forward can be fully recognized.
b) Provide the income statement starting with net income (loss) before tax for 2025 and 2026.
c) Explain how would your answer to [1] change if the benefits relating to the 2025 loss carryforward could not be recognized in 2025? No journal entries are required in your explanations.