The journal entries to record the net operating loss of Year 3. Given information: Income before tax in Year 1 is a profit of $300,000. Tax rate for Year 1 is 40%. Income before tax in Year 2 is a profit of $200,000. Tax rate for Year 2 is 35%. Income before tax in Year 3 is a loss of $450,000. Tax rate for Year 3 is 35%. Expected future tax rates are 35%.

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Scarce resource; discontinued product lines; negative contribution marginThe officers of Bardwell Company are reviewing the profitability of the company’s four products and the potential effects of several proposals for varying the product mix. The following is an excerpt from the income statement and other data. Total Product P Product Q Product R Product S Sales $62,600 $10,000 $18,000 $12,600 $22,000 Cost of goods sold (44,274) (4,750) (7,056) (13,968) (18,500) Gross profit $18,326 $5,250 $10,944 $(1,368) $3,500 Operating expenses (12,004) (1,990) (2,968) (2,826) (4,220) Income before taxes 6,322 $3,260 $7,976 $(4,194) $(720) Units sold 1,000 1,200 1,800 2,000 Sales price per unit $10.00 $15.00 $7.00 $11.00 Variable cost of goods sold 2.50 3.00 6.50 6.00 Variable operating expenses 1.17 1.25 1.00 1.20 Each of the following proposals is to be considered independently of the other proposals. Consider only the product changes stated in each…

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Chapter 17, Problem 17.20BE

To determine

To prepare: The journal entries to record the net operating loss of Year 3.

Given information:

Income before tax in Year 1 is a profit of $300,000.

Tax rate for Year 1 is 40%.

Income before tax in Year 2 is a profit of $200,000.

Tax rate for Year 2 is 35%.

Income before tax in Year 3 is a loss of $450,000.

Tax rate for Year 3 is 35%.

Expected future tax rates are 35%.

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