Question - In its first year of operations (2016), ABC Corp. had a $800,000 net operating loss when the tax rate was 30%.
In 2017, ABC has $350,000 taxable income and the tax rate still is 30%.
Assume, the management thinks that it is more likely than not that the loss carryforward will not be realized in the near future. [Hint: Valuation allowance is needed]
(a) What are the entries in 2016 to record the tax effects of the loss carryforward?
(b) What entries would be made in 2017 to record the current and deferred income taxes and to recognize the loss carryforward?