Question

Financial Reporting Class

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Part #2 [NOL carryback and carryforward: multiple differences] Fores Construction Company reported a pretax operating loss of $165 million for financial reporting purposes in 2018. Contributing to the loss were (a) a penalty of $20 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2018 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss wll 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: $75 million 2016 2017 30 million Q#1 Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2018. Fores elects the carryback option. [10 points] Q#2: Prepare the journal entry to record income taxes in 2019 assuming pretax accounting income is $60 million. No additional temporary differences originate in the year 2019. [10 points

Answer 1

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Naming Convention and format is is not available, it can be slightly different per question format: Solution: Journal entries Event Credit Account title and explaination Debit Receivable-Income tax refund (75+30)*40% $ 42 Deferred tax asset (165-75-30-20)*40% $ 16 Income Tax Benefit (165-20)*40% | $ (To recognize the income tax benefit of the net operating loss in 2018) 58 2) Event Credit Debit 24 $ Account title and explaination Income Tax Expense (60*40%) Deferred tax asset (40*40%) Income Tax Payable (60-40)*40% (To record income taxes in 2019) $ 16