“Solway Limited had the following pre-tax income and losses:Year Pre-Tax Income (Loss) Tax Rate20X2 $ 360,000 34%20X3 440,000 3420X4 680,000 3420X5 340,000 3620X6 (2,680,000) 3820X7 300,000 3820X8 760,000 40The tax rates are those effective for the year indicated. The rates were enacted the year in which they became effective. Taxable income (loss) equalled accounting income (loss) in each year. Solway does not use a valuation allowance.Required:Prepare the entry to record income tax expense for 20X6. At the end of 20X6, management estimates that there is greater than a 50% probability of realizing the benefits of only $300,000 of the loss carryforward.Prepare the income tax expense entries for 20X7 and 20X8. In 20X7, management decides that the probability of realizing the benefits of the remaining loss carryforward is greater than 50%.”
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