Question

13 Fore Farms reported a pretax operating loss of $210 million for financial reporting purposes in 2021. 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 2021 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2022. 0.89 points The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2021 other than those described above. eBook Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021. 2. What is the net operating loss reported in 2021 income statement? 3. Prepare the journal entry to record income taxes in 2022 assuming pretax accounting income is $235 million. No additional temporary differences originate in 2022. Print Complete this question by entering your answers in the tabs below. References Required 1 Required 2 Required 3 Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021. (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 View journal entry worksheet No Event General Journal Debit Credit 1 1 Deferred tax asset < Required Required 2 >

Answer 1

Solution 1:

Computation of Taxable Operating Loss (2021)
Particulars	Amount (In million)
Pre tax operating Income (Loss)	-$210.00
Add: Non deductible penalty	$10.00
Add: Estimated loss contigency deductible in 2022	$10.00
Taxable operating income (Loss)	-$190.00

Journal Entries - Fore Farms (2021)
Event	Particulars	Debit (In Million)	Credit (In Million)
1	Deferred tax assets Dr	$50.00
	To Income Tax Benefits - Net operating loss		$50.00
	(To record deferred tax assets for temporary differences and loss carry forward)

Solution 2:

Income Statement - Fore Farms
Particulars	Amount (In Million)
Operating Income (loss) before income tax	-$210.00
Income tax benefit - Net operating loss	$50.00
Net Operating Income (Loss)	-$160.00

Solution 3:

Journal Entries - Fore Farms (2022)
Event	Particulars	Debit (In Million)	Credit (In Million)
1	Income tax expense Dr	$58.75
	To Income Tax payable (35*25%)		$8.75
	To Deferred tax assets		$50.00
	(To record income tax expense for 2022)