#9 In 2007, its first year of operations, XYZ Corp. has a $900,000 net operating loss when the tax rate is 30%. In 2008, XYZ has $360,000 taxable income and the tax rate remains 30%.
Assume the management of XYZ Corp. thinks that it is more likely than not that the loss carryforward will not be realized in the near future because it is a new company (this is before results of 2008 operations are known).
(a) What are the entries in 2007 to record the tax loss carryforward?
(b) What entries would be made in 2008 to record the current and deferred income taxes and to recognize the loss carryforward? (Assume that at the end of 2008 it is more likely than not that the deferred tax asset will be realized.)
The solution explains the journal entries relating to tax loss carryforward