Taxable Loss Carryforward with Valuation Allowance (ASPE)

question 3

Essay

Taxable loss carryforward with valuation allowance (ASPE)
In 2020, its first year of operations, Jersey Inc. reported a $ 200,000 loss for tax purposes. However, in 2021, Jersey reported $ 250,000 taxable income. The tax rate is 20%, and is likely to remain at this rate for the foreseeable future. Jersey is a private corporation reporting under ASPE.
Assume Jersey's management thinks, at the end of 2020, that it is likely that the loss carryforward will not be realized in the near future. Jersey chooses to use the valuation allowance method for loss carryforwards.
Instructions
a) What entries (if any) would be prepared in 2020 to record the loss carryforward?
b) What entries (if any) would be prepared in 2021 to record the current and future income taxes and to recognize the loss carryforward?

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Definitions:

Prefer

To prefer means to favor or choose something or someone over other options.

Current Income

The income generated from an investment or asset in the form of interest, dividends, or other earnings, typically over a year.

High Dividend Policy

A strategy employed by companies to distribute a significant portion of earnings to shareholders in the form of dividends.