Wynn Sheet Metal reported a net operating loss of $100,000 for financial reporti
ID: 2547438 • Letter: W
Question
Wynn Sheet Metal reported a net operating loss of $100,000 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 $60,000 70,000 80,000 60,000 Tax Rates 30% 30 40 45 Income Taxes Paid $18,000 21,000 32,000 27,000 2014 2015 2016 2017 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 lossExplanation / Answer
Solution 1:
Total operating loss for 2018 = $100,000
Loss carryback to 2016 = $80,000, income tax benefit = $80,000*40% = $32,000
Loss carryback to 2017 = $100,000 - $80,000 = $20,000, income tax benefit = $20,000 * 45% = $9,000
Total Income tax benefit due to loss carryback = $32000 + $9,000 = $41,000
Solution 2:
Solution 3: Only Carry forward, not Carrying back:
Loss to be carryforward = $100,000
Deferred tax assets to be recoganized = $100000*40% = $40,000
Adjusting Journal Entries - Wynn Sheet Metal Event Particulars Debit Credit 1 Receivables - Income Tax Refund $41,000.00 To Income tax benefit - Net Operating Loss $41,000.00 (Being income tax benefit due to loss carryback recorded)Related Questions
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