Question

Fores Construction Company reported a pretax operating loss of $200 million for financial reporting purposes in 2018. 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 2018 and (b) an estimated loss of $30 million from accruing a loss contingency. The loss will be tax deductible when paid in 2019. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2018 other than those described above. Taxable income in Fores's two previous years of operation was as follows: 2016 2017 $105 million 30 million Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2018. Fores elects the carryback option. 2. What is the net operating loss reported in 2018 income statement? 3. Prepare the journal entry to record income taxes in 2019 assuming pretax accounting income is $100 million. No additional temporary differences originate in 2019. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2018. Fores elects the carryback option. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) View transaction list

Answer 1

ANSWER

Date	Account Title and Explanation	Debit	Credit
2018	Income tax refund -Receivable(105+30)*40%	54
	Deferred tax asset(200-10-105-30)*40%	22
	Income tax benefit		76
	(To record income tax benefit)
	Income Statement (Partial)
	Operating loss before taxes	200
	less:Income Tax benefit	76
	Net Operating loss	124
Date	Account and Title Explanation	debit	Credit
2019	Income Tax Expenses	40
	Deferred Tax asset		22
	Income tax payable		18
	(to record income tax 2019)

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