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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. 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.
Expert Solution
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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