Assignment 1 - ACCT 2036 PDF

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Assignment 1 - ACCT 2036...

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Financial Accounting ACCT 2036 Assignment 1 1) Maximize carry back provision where possible Income Tax Receivable – 2014 (25,000 x 25%) Income Tax Receivable – 2015 (60,000 x 25%) Income Tax Receivable – 2016 (80,000 x 30%) Current Tax Benefit

6,250 15,000 24,000 45,250

Deferred Tax Asset 15,750 Deferred Tax Benefit 15,750 (210,000 – 25,000 – 60,000 – 80,000) x 35% Income Statement 2017 Loss before Income Tax Tax Benefit: Current Tax Benefit Deferred Tax Benefit Loss after Income Tax

(210,000) 45,250 15,750

61,000 (149,000)

Balance Sheet 2017 Current Asset Current Tax Asset Non-current Asset Deferred Tax Asset

45,250 15,750

Notes of Disclosures: The loss in 2017 after refund ($45,000) can be carried forward until 2037.

2) Only carry forward

Deferred Tax Asset Deferred Tax Benefit (210,000 x 35%)

73,500 73,500

Income Statement 2017 Loss before Income Tax Tax Benefit: Deferred Tax Benefit Loss after Income Tax

(210,000) 73,500 (136,500) Balance Sheet 2017

Non-current Asset Deferred Tax Asset

73,500

Notes of Disclosures: The loss in 2017 ($210,000) can be carried forward until 2037.

3) Maximize carry back but not confident that future taxable incomes were probable The tax receivable and current tax benefit will remain, but the company will not record the loss in 2017 after tax refund ($45,000) as deferred tax asset anymore. Income Tax Receivable – 2014 (25,000 x 25%) Income Tax Receivable – 2015 (60,000 x 25%) Income Tax Receivable – 2016 (80,000 x 30%) Current Tax Benefit

6,250 15,000 24,000 45,250 Income Statement 2017

Loss before Income Tax Tax Benefit: Current Tax Benefit Loss after Income Tax

(210,000) 45,250 (164,750)

Balance Sheet 2017

Current Asset Current Tax Asset

45,250

Notes of Disclosures: The loss in 2017 after refund ($45,000) can be carried forward until 2037.

4) In my opinion, the company should carry forward the loss for future Net Income.   

The tax rate from 2013 to 2015 remained at 25% then increased to 30% in 2016 and finally reached 35% in 2017. The company would get more benefit from income tax deduction. The company can reduce Income Tax in future if they gain benefit. If the company chooses to carry back, the tax refund they get is quite low, therefore, it would be better to carry forward the loss in 2017 for future income....