Fores Construction Company reported a pretax operating loss of $210 million for

Question

Fores Construction Company reported a pretax operating loss of $210 million for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $10 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of 20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2017 The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2016 other than those described above. Taxable income in Fores's two previous years of operation was as follows: 2014 $110 million 2015 55 million Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2016. Fores elects the carryback option. (If no entry is required for a select "No journal entry required" in the first account field Enter your answers in millions (Le, 10,000,000 should be entered as 10).) view transaction list view general journal 1 Receivable-Income tax refund Deferred tax asset Income tax benef 2. 2. What is the net operating loss reported in 2016 income statement? (Enter your answers in miltlions (.e, 10,000,000 should be entered as 10).) milion

Explanation / Answer

1./

$45

($210 - $110 -$55)

RECEIVABLE INCOME TAX REFUND A/C...................................DR $66

DEFFERED TAX ASSET A/C......................................................DR $18

   TO INCOME TAX BENEFIT $84

2./

OPERATING LOSS BEFORE TAX = $210

LESS INCOME TAX BENEFIT = ($84)

NET OPERATING LOSS = $126

3./

INCOME TAX EXPENSES A/C ...........................DR $ 36 [$90 * 40%]

TO DEFFERED TAX ASSET A/C $18

   TO INCOME TAX PAYABLE A/C $18

CURRENT OPERATING LOSS YEAR 2014 YEAR 2015 YEAR 2017 LOSS CARRYBACK/FORWARD $210 $110 $55

$45

($210 - $110 -$55)

TAX RATE N/A 40% 40% 40% TAX REFUND N/A $44 $22 N/A DEFFERED TAX ASSET N/A N/A N/A $18

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