The following information pertains to Towers Corporation: • From 20X1 through 20X3, Towers had pre-tax income totalling $190,000. In 20X4, Towers had a pre-tax loss of $630,000. • Earnings of each year is equal to taxable income. • The income tax rate was 40% from 20X1 through 20X4. In 20X4, a rate of 38% was enacted for 20X5, and a rate of 36% was enacted for 20X6 and the following years. In 20X4, management predicted that the benefits of only $224,000 of the tax loss carryforward were probable of realization in the carryforward period. Management also estimated that pre-tax earnings for 20X5 would be no more than $68,000. • Actual pre-tax earnings in 20X5 were $88,000. Management estimated that only $136,000 of the tax loss carryforward was probable of realization. Pre-tax 20X6 earnings were $140,000. Management decided that it was highly probable that the full benefit of the remaining tax loss carryforward would be realized. Required: Towers uses a valuation account for its deferred income tax assets. What are the balances in SFP deferred income tax related accounts for 20X4, 20X5, and 20X6? 20X4 20X5 20X6 Deferred income tax $ 224,000 $ 136,000
The following information pertains to Towers Corporation: • From 20X1 through 20X3, Towers had pre-tax income totalling $190,000. In 20X4, Towers had a pre-tax loss of $630,000. • Earnings of each year is equal to taxable income. • The income tax rate was 40% from 20X1 through 20X4. In 20X4, a rate of 38% was enacted for 20X5, and a rate of 36% was enacted for 20X6 and the following years. In 20X4, management predicted that the benefits of only $224,000 of the tax loss carryforward were probable of realization in the carryforward period. Management also estimated that pre-tax earnings for 20X5 would be no more than $68,000. • Actual pre-tax earnings in 20X5 were $88,000. Management estimated that only $136,000 of the tax loss carryforward was probable of realization. Pre-tax 20X6 earnings were $140,000. Management decided that it was highly probable that the full benefit of the remaining tax loss carryforward would be realized. Required: Towers uses a valuation account for its deferred income tax assets. What are the balances in SFP deferred income tax related accounts for 20X4, 20X5, and 20X6? 20X4 20X5 20X6 Deferred income tax $ 224,000 $ 136,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The following information pertains to Towers Corporation:
From 20X1 through 20X3, Towers had pre-tax income totalling $190,000.
• In 20X4, Towers had a pre-tax loss of $630,000.
• Earnings of each year is equal to taxable income.
• The income tax rate was 40% from 20X1 through 20X4.
• In 20X4, a rate of 38% was enacted for 20X5, and a rate of 36% was enacted for 20X6 and the following years.
• In 20X4, management predicted that the benefits of only $224,000 of the tax loss carryforward were probable of realization in the
carryforward period. Management also estimated that pre-tax earnings for 20X5 would be no more than $68,000.
Actual pre-tax earnings in 20X5 were $88,000. Management estimated that only $136,000 of the tax loss carryforward was
probable of realization.
• Pre-tax 20X6 earnings were $140,000. Management decided that it was highly probable that the full benefit of the remaining tax
loss carryforward would be realized.
Required:
Towers uses a valuation account for its deferred income tax assets. What are the balances in SFP deferred income tax related
accounts for 20X4, 20X5, and 20X6?
20X4
20X5
20X6
Deferred income tax
$ 224,000 $ 136,000
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