Question

Wynn Sheet Metal reported an operating loss of $184,000 for financial reporting and tax purposes in 2018. 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:

	Taxable Income			Tax Rates			Income Taxes Paid
2014	$	72,000		30	%		$	21,600
2015		82,000		30				24,600
2016		92,000		40				36,800
2017		72,000		45				32,400

Required:
1. 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.
2. Show the lower portion of the 2018 income statement that reports the income tax benefit of the operating loss.

Complete the following table given below to record income taxes. (Enter your answers in thousands. Round your answers to two decimal places. Leave no cell blank, enter "0" wherever applicable.)

	Operating loss carryback Rate % Tax $ Recorded as: Carried back - 2014 x = $0 Carried back - 2015 x = 0 Carried back - 2016 x = Carried back - 2017 x = Total carryback $0.00 Operating loss carryforward Carried forward x =

1. 1 GJ Record 2018 income tax benefit from operating loss.

REQUIRED 2.

Show the lower portion of the 2018 income statement that reports the income tax benefit of the operating loss. (Amounts to be deducted should be indicated with a minus sign. Round your answers to two decimal places. Enter your answers in thousands.)

	Income tax benefit: 0.00 $0.00

Answer 1

ANSWER

Solution 1:

Total operating loss for 2018 = $184,000

Loss carryback to 2016 = $92,000, income tax benefit = $92,000*40% = $36,800

Loss carryback to 2017 = $72,000 income tax benefit = $72,000* 45% = $32,400

Total Income tax benefit due to loss carryback = $36,800+ $32,400= $69,200

Loss carry forward = $184,000 - $92,000- $72,000= $20,000

Deferred tax assets on loss carryforward = $20,000*40% = $8,000

Adjusting Journal Entries - Wynn Sheet Metal
Event	Particulars	Debit	Credit
1	Receivables - Income Tax Refund	$69,200
	To Income tax benefit - Net Operating Loss		$69,200
	(Being income tax benefit due to loss carryback recorded)
2	Deferred Tax Assets Dr	$8,000
	To Income tax benefit - Deferred Tax Assets		$8,000
	(Being deferred tax assets recorded for loss carry forward)

Solution 2:

Income Statement - Wynn Sheet metal For the year ended December 31, 2018
Particulars		Amount
Operating loss before income tax		-$184,000
Income tax benefit:
Income tax benefit - Loss Carryback	69,200
Income tax benefit - Deferred Tax Assets	8000	$77,200
Net Loss		-$106,800

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