Problem
The pretax financial income (or loss) figures for Pritchett Company are as follows.
2011 $90,000
2012 65,000
2013 40,000
2014 (230,000)
2015 70,000
2016 (50,000)
2017 80,000
2018 150,000
Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 40% tax rate for 2011 and 2012 and a 35% tax rate for the remaining years.
Required:
Prepare the journal entries for the years 2012 to 2018 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Pritchett Company uses the carryback provision. All income and losses relate to normal operations. Assume that it is more likely than not that the benefits of the loss carryforward will be realized, thus no valuation account is needed.