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    Temporary Differences, Valuation Account, Entries and IS

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    (Two NOL's, No Temporary Differences, No Valuation Account, Entries and Income Statement)
    Felicia Rashad Corp. has pretax financial income(or loss) equal to taxable income(or loss) from 1999 through 2007 as follows.
    Income Loss Tax Rate
    1999 $29,000 30%
    2000 40,000 30%
    2001 17,000 35%
    2002 48,000 50%
    2003 -150,000 40%
    2004 90,000 40%
    2005 30,000 40%
    2006 150,000 40%
    2007 -60,000 45%

    Pretax financial income (loss) and taxable income(loss) were the same for all years since Rashad has been in business. Assume the carry back provision is employed for net operating losses. In recording the benefits of a loss carry forward, assume that it is more likely than not that the related benefit will be realized.

    a) What entry/ies for income taxes should be recorded for 2003
    b) Indicate what the income tax expense portion of the income statement for 2005 should look like. Assume all income (loss) relates to continuing operations.
    c) What entry for income taxes should be reported
    d) How should the income tax expense section of the income statement for 2004 appears?
    e) What entry for income taxes should be recorded in 2007?
    f) How should the income tax expense section of the income statement for 2007 appear?

    (Two Temporary Differences, One Rate, 3 Years) Button company has two temporary differences between its income tax expense and income taxes payable>
    2007 2008 2009
    Pretax financial income $840,000 $910,000 $945,000
    Excess depreciation expense on tax return -30,000 -40,000 -10,000
    Excess warranty expense in financial income 20,000 10,000 8,000
    Taxable income $830,000 $880,000 $943,000

    The income tax rate for all years is 40%


    a) Help prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2007, 2008, 2009

    b) Assuming there were no temporary differences prior to 2007, indicate how deferred taxes will be reported on the 2009 balance sheet. Button's product warranty is for 12 months.

    c) Help prepare the income tax expense section of the income statement for 2009, beginning with the line "Pretax financial income."

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    Solution Summary

    The solution discusses different questions regarding Felicia Rashad Corp, which touches on temporary differences, valuation account entries and income statements.