During 2017, Continental Steel Company reported a net operating loss

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.

Here’s the SOLUTION

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