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Wynn Sheet Metal reported an operating loss of $172,000 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: 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. (lf 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 “” wherever applicable.) 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.)
Expert Answer
Solution:
1.
| Operating loss carryback | ||||||
| Carried back-2012 | $0 | x | 30% | = | $0 | |
| Carried back-2013 | $0 | x | 30% | = | $0 | |
| Carried back-2014 | $84 | x | 40% | = | $33.60 | |
| Carried back-2015 | $68 | x | 45% | = | $30.60 | |
| Total carryback | $64.20 | Receivable-income tax refund | ||||
| Operating loss carryforward | ||||||
| Carried forward | 20 | x | 40% | = | $8 | Deferred tax asset-ending |
Receivable—Income tax refund…………..64.20
Deferred tax asset……………………………….8
Income tax benefit—Net operating loss………………72.20
2.
Operating loss before income taxes $(172)
Income tax benefit:
Tax refund from loss carryback $64.2
Future tax savings from loss carryforward 8 72.2
Net loss $(99.8)
Explanation:
1.
| Prior years | Current year | Future deductible amounts | |||
| 2014 | 2015 | 2016 | |||
| Operating loss | -172 | ||||
| Loss carryback | -84 | -68 | 152 | ||
| Loss carryforward | 20 | -20 | |||
| 0 | |||||
| Enacted tax rate | 40% | 45% | 40% | 40% | |
| Tax payable (refundable) | -33.6 | -30.6 | 0 | ||
| Deferred tax asset | -8 | ||||
| Deferred tax asset: | |||||
| Ending balance (balance currently needed | $8 | ||||
| Less: beginning balance | 0 | ||||
| Change needed to achieve desired balance | $8 |
