Santiago Inc incurred their first loss during this fiscal year on both their financial statements and

tax returns. Suppose there are no difference between the calculation of books income and taxable

income. The net loss this year was $1,000,000, prior year's income was $12,000,000 and the

applicable tax rate was 40%. What would the entry be if the government(s) allowed the company to

carry a tax loss back to prior tax years for a full refund of prior tax paid?

 

A. DR Deferred tax asset$400K, CR Tax benefit( Provision) $400K.

B. DR Current tax receivable $400K, CR Tax benefit (Provision)$400K.

C. DR Tax expense(provision) $400K, CR current taxes payable $400K.

D. CR tax expense(provision) 400K, CR deferred tax liability $400K

E. DR current tax expense 400K, CR deferred tax expense $400K.

 

I don't understand this question. Please help me. Thank you.