Question

Amazonian Corporation has the following tax information:

Year	Taxable Income	Tax Rate
2017	$1,000,000	35%
2018	$900,000	30%
2019	$800,000	28%

A. In 2020, Amazonian incurred a net operating loss (NOL) of $350,000, which the company elected to carry back. The statutory corporate tax rate in 2020 and for all future years is 22%. Prepare Amazonian's journal entry to record the effect of the loss carry back.

B. Assume instead that in 2020 Amazonian incurred an NOL of $2,000,000 and that the company elected to carry back the loss. The statutory corporate tax rate in 2020 and for all future years is 22%. Prepare the journal entry to record the effects of the NOL.

Answer 1

Solution A:

NOL of 2020, carry back to 2018 = $350,000

Income tax refund for loss carryback = $350,000*30% = $105,000

Journal Entries - Amazonian Corporation
Date	Particulars	Debit	Credit
31-Dec-20	Receivables - Income Tax Refund	$105,000.00
	To Income tax benefit - Net Operating Loss		$105,000.00
	(Being income tax benefit due to loss carryback recorded)

Solution B:

Income tax refund for loss carry back to 2018 and 2019 = ($900,000*30%) + ($800,000*28%) = $494,000

Deferred tax asset for loss carry forward = $300,000 * 22% = $66,000

Journal Entries - Amazonian Corporation
Date	Particulars	Debit	Credit
31-Dec-20	Receivables - Income Tax Refund	$494,000.00
	Deferred Tax Assets Dr	$66,000.00
	To Income tax benefit - Net Operating Loss		$560,000.00
	(Being income tax benefit due to loss carryback recorded)