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Colorado Company has provided you the following information.

Year  Taxable income  Income tax rate

2014  $390,000  35% 

2015  $320,000  37%

2016  $400,000  40%

2017  ($1,200,000)  40%

Colorado Company has decided to use the loss carryback and carryforward provision as a result of the year 2017 loss. The enacted tax rate remains at 40% after year 2017. Colorado Company has determined that a valuation allowance is not necessary.

Prepare the journal entry on December 31, 2017 to record the carryback and carryforward decision.

Part B (30 points)

The Matrix Company began operations as of the beginningof 2015. During  2015, Matrix reported GAAP (book) income before taxes of $789,500. For income tax purposes, depreciation expense was $150,000; for GAAP (book) purposes, depreciation expense was $74,000. Matrix accrued $900,000 of revenue for GAAP (book) purposes during 2015; $600,000 of the accrued revenue was taxable during 2015. Matrix earned interest of $79,800 from a municipal bond investment during 2015. Matrix’s marginal income tax rate is 40%. Matrix did not make any income tax payments during 2015.

a.  Determine Matrix’s taxable income for the year ended December 31, 2015.

b.  Prepare the 2015 year-end journal entry to record income tax expense.

 

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