Question

Wynn Sheet Metal reported a net operating loss of $116,000 for financial reporting and tax purposes in 2018. The enacted tax rate is 35%. 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
2014	$	68,000		25	%		$	17,000
2015		78,000		25				19,500
2016		88,000		35				30,800
2017		68,000		40				27,200

Required:
1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Wynn elects the carryback option.
2. Show the lower portion of the 2018 income statement that reports the income tax benefit of the net operating loss.
  

Answer 1

1.

Net Operating loss carryback	Amount (In '000)	Rate of Tax	Tax	Recorded as
Carried back - 2014	$0.0	25%	$0.00
Carried back - 2015	$0.0	25%	$0.00
Carried back - 2016	$88.0	35%	$30.80
Carried back - 2017	$28.0	40%	$11.20
Total Carryback	$116.0		$42.00	Income tax benefit

Event	Particulars	Debit (In '000)	Credit (In '000)
1	Receivables - Income Tax Refund	$42.00
	To Income tax benefit - Net Operating Loss		$42.00
	(Being income tax benefit due to loss carryback recorded)

2.

Income Statement - Wynn Sheet metal For the year ended December 31, 2018
Particulars	Amount (In'000)
Operating loss before income tax	-$168.00
Income tax benefit:
Tax refund from loss carryback	$42.00
Net Income (Loss)	-$126.00