Wynn Sheet Metal reported a net operating loss of $130,000 for financial reporti
ID: 2518910 • Letter: W
Question
Wynn Sheet Metal reported a net operating loss of $130,000 for financial reporting and tax purposes in 2018. The enacted tax rate is 30%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows:
Required:
1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Wynn elects the carryback option.
2. Show the lower portion of the 2018 income statement that reports the income tax benefit of the net operating loss.
TaxableIncome Tax
Rates Income Taxes Paid 2014 $ 75,000 20 % $ 15,000 2015 85,000 20 17,000 2016 95,000 30 28,500 2017 75,000 40 30,000
Explanation / Answer
1) Losses can be carried back for two years only. Hence, the loss to be set off against income of prior years and the tax refund receivable would be as shown below: Year Loss carried back Tax rate Tax refund due 2016 55000 30% 16500 2017 75000 40% 30000 Tax refund receivable 46500 The Journal entry would be: Income tax refund receivable 46500 Income tax benefit from NOL carryback 46500 2) Net operating loss before income taxes 130000 Income tax benefit from NOL carryback 46500 Net loss 83500
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