Part A
Colorado Company has provided you the following information.
Year
2014
2015
2016
2017 Taxable income
$390,000
$320,000
$400,000
($1,200,000) Income tax rate
35%
37%
40%
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.
Year
201
7
201
5 Transaction NOL $320,000
-$880,000 201
6
$400,000
-$480,000 Net of Loss Unused carry forward
Enacted future tax
rate
Deferred tax 12/31/201
7
12/31/201 Tax
Rate Tax Paid Tax Refund $320,000
$320,000
$0 40% $128,000 $128,000 40% $0 $400,000
$400,000
$0 40% $160,000 $1,200,000 Net of Loss Date Taxable
Income $160,000
$288,000 Income tax refund 40% $480,000
40%
$192,000 Account Titles & Explanation
Income tax refund receivable
Income tax expense(carryback benefit)
Deferred tax asset J
E Debit Credit 288,000
288,000
192,000 7 Income tax expense(carryforward
benefit) 192,000 Part B
The Matrix Company began operations as of the beginning of 2015. During 2015, Matrix
reported GAAP (book) income before taxes of $789,500. For income tax purposes,
depreciation expense was $150,000; for GAAP (book) purposes, depreciation expense
was $74,000. Matrix accrued $900,000 of revenue for GAAP (book) purposes during
2015; $600,000 of the accrued revenue was taxable during 2015. Matrix earned interest
of $79,800 from a municipal bond investment during 2015. Matrix’s marginal income tax
rate is 40%. Matrix did not make any income tax payments during 2015.
a. Determine Matrix’s taxable income for the year ended December 31, 2015. Revenue
Less: Depreciation Tax Rate Book (GAAP)
$900,000
$74,000 Tax
$600,000
$150,000 Difference
$300,000
-$76,000 $826,000
40% $450,000
40%
$180,000 $376,000
40%
$150,400 Interest $79,800 Taxable Income $259,800 b. Prepare the 2015 year-end journal entry to record income tax expense.
Proof: 259800+150400=410,200 Date
12/31/2015 Account Titles &
Explanation
Income tax provision
Deferred tax liability
Income tax payable J
E Debit
$410,200 Credit
$150,400
$259,800

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