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NOL Carryback and Carryforward, Valuation Account versus NoValuation Account)

(LO 3) Spamela Hamderson Inc. reports the following pretaxincome (loss) for both financial reporting purposes and taxpurposes. (Assume the carryback provision is used for a netoperating loss.)

Year	Pretax Income (Loss)	Tax Rate
2015	$120,000?	34%
2016	??90,000?	34??
2017	?(280,000)	38??
2018	??220,000?	38??

The tax rates listed were all enacted by the beginning of2015.

Instructions

(a)  

Prepare the journal entries for the years 2015-2018 to recordincome tax expense (benefit) and income taxes payable (refundable)and the tax effects of the loss carryback and carryforward,assuming that at the end of 2017 the benefits of the losscarryforward are judged more likely than not to be realized in thefuture.

(b)  

Using the assumption in (a), prepare the income tax section ofthe 2017 income statement beginning with the line “Operating lossbefore income taxes.”

(c)  

Prepare the journal entries for 2017 and 2018, assuming thatbased on the weight of available evidence, it is more likely thannot that one-fourth of the benefits of the loss carryforward willnot be realized.

(d)  

Using the assumption in (c), prepare the income tax section ofthe 2017 income statement beginning with the line “Operating lossbefore income taxes.”