Problem: In 2003, its first year of operations, Landon Corp. has a $700,000 net operating loss when the tax rate is 30%. In 2004, Landon has $300,000 taxable income and the tax rate remains 30%.
Assume the management of Landon 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 2004 operations are known).
Q1. What are the entries in 2003 to record the tax loss carryforward?
Q2. What entries would be made in 2004 to record the current and deferred income taxes and to recognize the loss carryforward? (Assume that at the end of 2004 it is more likely than not that the deferred tax asset will be realized.)