Wynn Sheet Metal reported an operating loss of $194,000 for financial reporting
ID: 2528134 • Letter: W
Question
Wynn Sheet Metal reported an operating loss of $194,000 for financial reporting and tax purposes in 2018. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows: Taxable Income Tax Rates Income Taxes Paid 2014 $ 77,000 30 % $ 23,100 2015 87,000 30 26,100 2016 97,000 40 38,800 2017 77,000 45 34,650 Required: 1. Complete the following table given below and prepare the journal entry to recognize the income tax benefit of the 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 operating loss.
Explanation / Answer
Solution 1:
Total operating loss for 2018 = $194,000
Loss carryback to 2016 = $97,000, income tax benefit = $97,000*40% = $38,800
Loss carryback to 2017 = $77,000 income tax benefit = $77,000 * 45% = $34,650
Total Income tax benefit due to loss carryback = $38800 + $34,650 = $73,450
Loss carry forward = $194,000 - $97,000 - $77,000 = $20,000
Deferred tax assets on loss carryforward = $20,000*40% = $8,000
Solution 2:
Adjusting Journal Entries - Wynn Sheet Metal Event Particulars Debit Credit 1 Receivables - Income Tax Refund $73,450.00 To Income tax benefit - Net Operating Loss $73,450.00 (Being income tax benefit due to loss carryback recorded) 2 Deferred Tax Assets Dr $8,000.00 To Income tax benefit - Deferred Tax Assets $8,000.00 (Being deferred tax assets recorded for loss carry forward)Related Questions
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