During 2017, Continental Steel Company reported a net operating loss of $150 million for financial accounting and income tax purposes. The tax rate in 2017 is 35%. Taxable income, tax rates, and taxes paid in previous years was as follows:
Taxable income Tax rate Taxes paid
2015 $10 million 35% $3.5 million
2016 100 million 35% $35 million
Management has decided that it is more likely than not that 50% of any loss carry forward will expire unutilized.
Based on the above, please answer the following questions:
1. Prepare the necessary entries in 2017 to account for the income taxes.
Assume that accounting and taxable income for 2018 is actually $100 million, the tax rate remains 35%, and all the loss carryforward can be used.
2. Prepare the necessary accounting entries in 2018 to account for the income taxes.