11. 1000 points Brief Exercise 16-12 Net operating loss carryforward [LO16-7 Dur

Question

11. 1000 points Brief Exercise 16-12 Net operating loss carryforward [LO16-7 During its first year of operations, Nile.com reported a net operating loss of $6 million for financial reporting and tax purposes. The enacted tax rate is 25% Prepare the journal entry to recognize the income tax benefit of the net operating loss. (If no entry is required for a particular event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) View transaction list Journal entry worksheet Record the income tax benefit of the operating loss. Note: Enter debits before credits. Debit Credit Record entry Clear entry View general journal TOSHIBA esc 2 3 4 5

Explanation / Answer

Deferred Tax Asset A/c Dr $ 1.5 Million

Income statement A/c Cr $ 1.5 million

Net operating losses are assets of the Company since it reduces the future tax liability. Under further asset classification, it is classified under deferred tax asset. A deferred tax asset is created on account of temporary differences, that reduces the taxable income. A deferred tax asset is created on the assumption that the company will earn sufficient profits in the future from which past net operating losses can be set off.

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