Question

Wynn Farms reported a net operating loss of $250,000 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	$	78,000		30	%		$	23,400
2018		88,000		30				26,400
2019		170,000		40				68,000
2020		40,000		45				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 and prepare the journal entry 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.

Complete this question by entering your answers in the tabs below. Required 1 Calculation Required 1 G Required 2 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 following table to recognize the income tax benefit of the net operating loss. (Enter your answers in thousands (i.e., 55,000 should be entered as 55). Leave no cell blank, enter "0" wherever applicable. Enter all amounts as positive values.) Show less Is 이 x $ Operating loss carryback Carried back - 2017 Carried back - 2018 Carried back - 2019 Carried back - 2020 Total carryback Operating loss carryforward Carried forward Rate % 30% 30% 40% 45% = = = = Tax $ Recorded as: 0 0 68.00 18.00 86.00 Receivable-income tax refund 170 x 40 x $ $ $ 25% = < Required 1 Calculation Required 1 GJ >

Answer 1

Solution 1:

Net Operating loss carryback	Amount	Rate of Tax	Tax	Recorded as
Carried back - 2017	$0.00	30%	$0.00
Carried back - 2018	$0.00	30%	$0.00
Carried back - 2019	$170.00	40%	$68.00
Carried back - 2020	$40.00	45%	$18.00
Total Carryback	$210.00		$86.00	Income tax benefit
Deferred Tax Assets	Amount (In '000)	Rate of Tax	Tax
Loss Carried forward	$40.00	25%	$10.00	Deferred tax assets

Adjusting Journal Entries - Wynn Farms (In'000)
Event	Particulars	Debit	Credit
1	Receivables - Income Tax Refund	$86.00
	Deferred Tax Assets Dr	$10.00
	To Income tax benefit - Net Operating Loss		$96.00
	(Being income tax benefit due to loss carryback recorded)

Solution 2:

Income Statement - Wynn Farms For the year ended 2021
Particulars		Amount
Operating Income (loss) before income tax		-$250.00
Income tax benefits:
Income tax benefit - Net operating loss	$86.00
Income tax benefit - Deferred Tax Assets	$10.00
Total income tax benefits		$96.00
Net Operating Income (Loss)		-$154.00