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In Year 1, Cardinals Company operated at a tax loss, totaling ($105,600) during its first year of business.

In Year 1, Cardinals Company operated at a tax loss, totaling ($105,600) during its first year of business.

FINANCIAL ACCOUNTING
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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In Year 1, Cardinals Company operated at a tax loss, totaling ($105,600) during its first year of business. b. Cardinals Company determined that it was more likely than not that 75% of the deferred tax asset would not be realized. Prepare the entry to record a deferred tax asset valuation allowance, assuming a zero beginning balance in that account. Recording Net Operating Loss Carryforward • Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero). a. Assuming a tax rate of 25%, and that income is expected in Year 2, record the entry to reflect the tax benefit of the net operating loss on December 31 of Year 1. Account Name Dr. Cr. Date a. Dec. 31 Deferred Tax Asset Income Tax Expense Income Tax Payable To record tax benefit of net operating loss b. Dec. 31 Income Tax Expense Valuation Allowance for Deferred Tax Asset To record allowance for deferred income tax V 26,400 0 0 19,800 0 0✔ 0x 0x 0✓ 19,800
Transcribed Image Text:In Year 1, Cardinals Company operated at a tax loss, totaling ($105,600) during its first year of business. b. Cardinals Company determined that it was more likely than not that 75% of the deferred tax asset would not be realized. Prepare the entry to record a deferred tax asset valuation allowance, assuming a zero beginning balance in that account. Recording Net Operating Loss Carryforward • Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero). a. Assuming a tax rate of 25%, and that income is expected in Year 2, record the entry to reflect the tax benefit of the net operating loss on December 31 of Year 1. Account Name Dr. Cr. Date a. Dec. 31 Deferred Tax Asset Income Tax Expense Income Tax Payable To record tax benefit of net operating loss b. Dec. 31 Income Tax Expense Valuation Allowance for Deferred Tax Asset To record allowance for deferred income tax V 26,400 0 0 19,800 0 0✔ 0x 0x 0✓ 19,800
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