Final answer:
The question is about creating journal entries for book-tax differences in pretax income/loss, but specific figures are needed to provide detailed entries. In general, the entries would adjust for temporary differences between book income and taxable income, resulting in deferred tax assets and liabilities. Without concrete figures, only a conceptual explanation can be offered.
The correct option is not given.
Step-by-step explanation:
The student's question pertains to creating journal entries (JEs) for pretax income/loss differences reported by Metalock Inc for both book and tax purposes from the years 2018-2021.
However, to provide the specific journal entries, more detailed information is required, such as the exact amounts of pretax income or loss for each year, and whether these are temporary or permanent differences. Without such information, we can provide only general guidance on how to approach these entries.
For instance, a company would:
- Record an increase in a liability and a decrease in an asset if it accrued an expense for book purposes that is not yet deductible for tax purposes.
- Record an increase in both a liability and an asset if it received a payment for services to be provided in the future, which is recognized for tax purposes but deferred for book purposes.
- Record an increase in an asset and a corresponding increase in a liability if it prepaid an expense that is deductible for tax purposes but capitalized for book purposes.
- Record an increase in an asset and a decrease in a liability if it makes a payment that reduces a liability and also creates an asset that will be recognized over time for book purposes.
To correctly prepare these journal entries, the accountant would use the book-tax differences to record deferred tax assets or liabilities, which reflect the future tax consequences of these differences. Without the concrete figures, no actual journal entries can be prepared.
The correct option is not given.