Jennings Inc. reported the following pretax income (loss) and related tax rates during the years 2010–2016.

| June 5, 2016

Question

Jennings Inc. reported the following pretax income (loss) and related tax rates during the years 2010–2016.

P19-5 (NOL without Valuation Account) Jennings Inc. reported the following pretax income (loss) and related tax rates during the years 2010–2016.

Year

Pretax Income (Loss)

Tax Rate

2010

$40,000

30%

2011

25,000

30%

2012

50,000

30%

2013

80,000

40%

2014

-180,000

45%

2015

70,000

40%

2016

100,000

35%

Pretax financial income (loss) and taxable income (loss) were the same for all years since Jennings began business. The tax rates from 2013–2016 were enacted in 2013.

Instructions

a.Prepare the journal entries for the years 2014–2016 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume that Jennings elects the carryback provision where possible and expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year.

(b) Indicate the effect the 2014 entry(ies) has on the December 31, 2014, balance sheet.

(c) Prepare the portion of the income statement, starting with “Operating loss before income taxes,”
for 2014

(d) Prepare the portion of the income statement, starting with “Income before income taxes,” for 2015.

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