Question

Wynn Sheet Metal reported an operating loss of $202,000 for financial reporting and tax purposes in 2016. 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
2012	$	81,000	30	%	$	24,300
2013		91,000	30			27,300
2014		101,000	40			40,400
2015		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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands. Leave no cell blank, enter "0" wherever applicable.)

      
     

2.	Show the lower portion of the 2016 income statement that reports the income tax benefit of the operating loss. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands.)

     

Answer 1

				All the Amounts are in thousands
1 prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option
Event	General Journal	debit	Credit
1	Income tax refund (Receivable) A/c	$76.85
	Deffered tax Asset A/c	$8.4
	To Income tax benefit on net operating Loss		$85.25
	(being Income tax benefit on net operating Loss has been reconised )
Workings		Prior years		Current year	Furture Deductable Amount
	particulars	2014	2015	2016
	Operating Loss			($202)
	Loss carry back	$101	$81000	$181
	Loss carryforword			($21)	$21
	Tax Rate Applied on Amount	$101	$81		$21
	tax rate	40%	45%	40%	40%
	tax payable / (Refundable)	($40.40)	($36.45)
	Deffered tax asset				$8.4
	Total refund =$40.4+$36.45 =$76.85
	Total Deffered Tax asset =$8.40
2 Show the lower portion of the 2016 income statement that reports the income tax benefit of the operating loss
			Amounts in Thousands
	Operating Loss Before Income Taxes		($202)
	income Tax benefit
	Tax refund from Loss carry back	$76.85
	Future tax Savings from Loss cary forword	$8.4	$85.25
	Net Loss		($116.75)