Riley Inc reports the following pre tax incomes losses for

both #1392

Riley Inc. reports the following pre-tax incomes (losses) for both financial reporting purposes
and tax purposes:

Year Accounting Income (Loss) Tax Rate

2012............................$ 120,000....................34%

2013................................90,000....................34%

2014.............................(280,000)...................38%

2015..............................220,000...................38%

The tax rates listed were all enacted by the beginning of 2012. Riley reports under the ASPE
future/deferred income taxes method.

Instructions

(a) Prepare the journal entries for each of the years 2012 to 2015 to record income tax,
assuming the tax loss is first carried back, and that at the end of 2014, the loss carry forward
benefits are judged more likely than not to be realized in the future.

(b) Using the assumption as in part (a), prepare the income tax section of the 2014 and 2015
income statements, beginning with the line "Income (loss) before income tax."

(c) Prepare the journal entries for 2014 and 2015, assuming that it is more likely than not that
25% of the carry forward benefits will not be realized. This company does not use a valuation
allowance.

(d) Using the assumption in part (c), prepare the income tax section of the 2014 and 2015
income statements, beginning with the line "Income (loss) before income tax."

Riley Inc reports the following pre tax incomes losses for both

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