Homework SourseAudio Sound Limited provides audio equipment for corporate
. Audio Sound Limited provides audio equipment for corporate events. Audio Sound Limited reported the following pretax income (loss) and related tax rates during the years 2011-2015:
Year
Taxable Income
Income Tax Rate
2011
$300,000
34%
2012
100,000
25%
2013
50,000
15%
2014
(750,000)
34%
2015
800,000
34%
Audio Sound Limited has elected to use the carryback option for the NOL reported in 2014 and will carryforward any unused loss.
REQUIREMENTS:
a. Prepare the journal entry for 2014 to account for the NOL carryback and NOL carryforward.
b. Prepare the portion of the Income statement for 2014 starting with “Operating loss before income taxes.”
c. Prepare the journal entry to account for taxes in 2015.
d. Prepare the portion of the income statement for 2015 starting with “Operating loss before income taxes.”
| Year | Taxable Income | Income Tax Rate |
| 2011 | $300,000 | 34% |
| 2012 | 100,000 | 25% |
| 2013 | 50,000 | 15% |
| 2014 | (750,000) | 34% |
| 2015 | 800,000 | 34% |
Solution
a. Journal
b. Income Statement
| Date | Account Name | Debit | Credit |
| 2014 | Income Tax Receivable | 123000 | |
| DTA attributable to NOL | 102000 | ||
| Income tax expense | 225000 |
