Question

Exercise 16-23 (Algo) Net operating loss carryforward [LO16-7]

During 2021, its first year of operations, Baginski Steel Corporation reported a net operating loss of $424,000 for financial reporting and tax purposes. The enacted tax rate is 25%.

Required:
1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Assume the weight of available evidence suggests that future taxable income will be sufficient to benefit from future deductible amounts arising from the net operating loss carryforward.
2. Show the lower portion of the 2021 income statement that reports the income tax benefit of the net operating loss.

• 1

  Record 2021 income tax benefit from operating loss.

Show the lower portion of the 2021 income statement that reports the income tax benefit of the net operating loss. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in whole dollars.)

Answer 1

(a)
Date	Account Titles and Explanation	Debit (in $)	Credit ( in $)
2021	Deferred Tax Asset ( $ 424,000 x 25% )	$ 106,000
	Income Tax Benefit - Net Operating Loss		$ 106,000
	(To recod the Income Tax Benefit )
(b)
	Income Statement (Partial )
	Operating Loss Before taxes	($ 424,000)
	Income Tax Benefit - Net Operating Loss	$ 106,000
	Net Loss	($ 318,000)