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Homework answers / question archive / Wynn Farms reported a net operating loss of $160,000 for financial reporting and tax purposes in 2021

Wynn Farms reported a net operating loss of $160,000 for financial reporting and tax purposes in 2021

Accounting

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 20% 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.

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Required 1)

Net Operating loss carryback Amount Rate of Tax Tax Recorded as
Carried back - 2017 0 15% 0  
Carried back - 2018 0 20% 0  
Carried back - 2019 80,000 25% 20,000  
Carried back - 2020 60,000 30% 18,000  
         
Total Carryback     38,000 Receivable - Income tax refund
Operating Loss Carry forward:        
Carry forward (160,000 - 80,000 - 60,000) 20,000 25% 5,000 Deferred Tax Asset -Ending

Journal Entry:

Particulars Debit Credit
Receivable income tax refund 38,000  
Deferred tax Asset 5,000  
To Income Tax Benefit - Net Operating Loss   43,000

Required 2)

Particulars Amount Amount
Operating loss before income taxes   (160,000)
Income Tax benefit:    
Tax refund from loss carryback 38,000  
Future tax saving from loss carry forward 5,000 43,000
     
Net Loss   117,000?

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