Question

Indigo Corporation had the following tax information.

Answer 1

Answer:

Explanation:

Given that:

Indigo Corporation had the following tax information.

Year      Taxable Income         Tax Rate               Taxes Paid

2015        $294,000                  35%                       $102,900

2016         332,000                    30%                        99,600

2017          399,000                    30%                       119,700

In 2018, Indigo suffered a net operating loss of $487,000, which it elected to carry back. The 2018 enacted tax rate is 26%.

The objective is to prepare the Indigo's entry to record the effect of the loss carryback.

The Income  Tax Refund Receivable = Taxable income(2018) × Tax rate(2018) + ( net operating loss - Taxable income(2018) )  × Tax rate(2018)

(332000 × 30%)+(476000-332000) × 30%

The Income  Tax Refund Receivable =  (332000 × 0.30)+(476000-332000) × 0.30

The Income  Tax Refund Receivable = 99600 + 144000× 0.30

The Income  Tax Refund Receivable = 99600 + 43200

The Income  Tax Refund Receivable = 142800

Therefore, Indigo Corporation ENtry can be prepared as follows:

Account titles                                        Debit          Credit

Income Tax Refund Receivable          142800

Benefit Due to Loss Carryback                             142800

To record the effect of the loss carryback