Question

Wynn Farms reported a net operating loss of $160,000 for financial reporting and tax purposes in 2021. The enacted tax rate is 25%. 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 2017 $ 60,000 15 % $ 9,000 2018 70,000 15 10,500 2019 80,000 25 20,000 2020 60,000 30 18,000 Required: 1. NOL carrybacks are not allowed for most companies, except for property and casualty insurance companies as well as some farm-related businesses. Assume Wynn is one of those businesses. Complete the table given below to recognize the income tax benefit of the net operating loss. 2. Show the lower portion of the 2021 income statement that reports the income tax benefit of the net operating loss.

Answer 1

		tax rate	Tax
2017	$60,000	15%	$9,000
2018	70000	15%	$10,500
2019	80000	25%	$20,000
2020	60000	30%	$18,000
	2019	2021	2022	carryforward
Opearting loss			$160,000
Carryback loss	-80000	-60000	-140000
Loss carryforward			$20,000	-20000
Tax rate	25%	30%		25%
Tax refundable	-20000	-18000
Deferred Tax asset				-5000
					if in thousands
ans 1	Journal entry	DR	CR
	Income Tax Refund Receivable	38000			38
	Deferred Tax assets	5000			5
	Income Tax Refund-Operating loss		43000			43
ans 2	Income Statement
	Operating loss before Income tax		($160,000)			160
	Less: Income Tax-Benefit
	Tax Refund	38000			38
	Tax savings from carryforward loss	5000	43000		5	-43
	Net operating loss		($117,000)			117
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