Question

Wynn Sheet Metal reported an operating loss of $202,000 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	$	81,000		30	%		$	24,300
2015		91,000		30				27,300
2016		101,000		40				40,400
2017		81,000		45				36,450

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.

Required 1 Calculation

Complete the following table given below to record income taxes. (Enter your answers in thousands. Round your answers to two decimal places. Leave no cell blank, enter "0" wherever applicable.)

	Operating loss carryback Rate % Tax $ Recorded as: Carried back - 2014 x = Carried back - 2015 x = Carried back - 2016 x = Carried back - 2017 x = Total carryback Operating loss carryforward Carried forward x =

Required 1GJ. Record 2018 income tax benefit from operating loss.

Required 2.

Show the lower portion of the 2018 income statement that reports the income tax benefit of the operating loss. (Amounts to be deducted should be indicated with a minus sign. Round your answers to two decimal places. Enter your answers in thousands.)

	Income tax benefit:

Answer 1

Solution 1:

Net Operating loss carryback	Amount (In '000)	Rate of Tax	Tax	Recorded as
Carried back - 2014	$0.00	30%	$0.00
Carried back - 2015	$0.00	30%	$0.00
Carried back - 2016	$101.00	40%	$40.40
Carried back - 2017	$81.00	45%	$36.45
Total Carryback	$182.00		$76.85	Income tax benefit
Deferred Tax Assets	Amount (In '000)	Rate of Tax	Tax
Loss Carried forward	$21.00	40%	$8.40	Deferred tax assets

Adjusting Journal Entries - Wynn Sheet Metal
Event	Particulars	Debit (In '000)	Credit (In '000)
1	Receivables - Income Tax Refund	$76.85
	To Income tax benefit - Net Operating Loss		$76.85
	(Being income tax benefit due to loss carryback recorded)
2	Deferred Tax Assets Dr	$8.40
	To Income tax benefit - Deferred Tax Assets		$8.40
	(Being deferred tax assets recorded for loss carry forward)

Solution 2:

Income Statement - Wynn Sheet metal For the year ended December 31, 2018
Particulars		Amount (In'000)
Operating loss before income tax		-$202.00
Income tax benefit:
Income tax benefit - Loss Carryback	$76.85
Income tax benefit - Deferred Tax Assets	$8.40	$85.25
Net Income (Loss)		-$116.75