Camden Inc. (a property and casualty insurance company) reported taxable income of $150,000 for 2021 and $200,000 for 2022. Tax rate for both years was 25%. However, for 2023, Camden Inc. reported pre-tax accounting loss of $1,000,000 for financial reporting purposes. The pre-tax accounting loss for 2023 included an estimated loss of $250,000 from having accrued a loss contingency. The loss will be paid in 2024 at which time it will be tax deductible. The company decided to carry back its 2023 net operating loss. In 2024 the company developed and introduced a new product that proved to be in high demand. For 2024 the company reported pre-tax accounting income of $900,000. Assume that the tax rates are 30% for 2023 and 40% for 2024 and all future years. REQUIRED: Prepare the income tax journal entries for Camden Inc. at the end of 2023, assuming that at the end of 2023 the company believes it is more likely than not that 30% of deferred tax asset will not be realized. (Show supporting schedules and calculation). Prepare the income tax journal entries for Camden Inc. at the end of 2024, assuming that at the end of 2023 the company believes it is more likely than not that all of deferred tax assets will be realized. (Show supporting schedules and calculations.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Camden Inc. (a property and casualty insurance company) reported taxable income of $150,000 for 2021 and $200,000 for 2022. Tax rate for both years was 25%. However, for 2023, Camden Inc. reported pre-tax accounting loss of $1,000,000 for financial reporting purposes. The pre-tax accounting loss for 2023 included an estimated loss of $250,000 from having accrued a loss contingency. The loss will be paid in 2024 at which time it will be tax deductible. The company decided to carry back its 2023 net operating loss. In 2024 the company developed and introduced a new product that proved to be in high demand. For 2024 the company reported pre-tax accounting income of $900,000. Assume that the tax rates are 30% for 2023 and 40% for 2024 and all future years.

REQUIRED:

Prepare the income tax journal entries for Camden Inc. at the end of 2023, assuming that at the end of 2023 the company believes it is more likely than not that 30% of deferred tax asset will not be realized. (Show supporting schedules and calculation).

Prepare the income tax journal entries for Camden Inc. at the end of 2024, assuming that at the end of 2023 the company believes it is more likely than not that all of deferred tax assets will be realized. (Show supporting schedules and calculations.

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