AirParts Corporation reported a net operating loss of $25 million for financial reporting and tax purposes....
AirParts Corporation reported a net operating loss of $25 million for financial reporting and tax purposes. Taxable income last year and the previous year, respectively, was $20 million and $15 million. The enacted tax rate each year is 40%. Prepare the journal entry to recognize the income tax benefit of the net operating loss. AirParts elects the carryback option.
Homework Answers
Answer:
Receivable - income tax refund A/C Dr. $10,000,000
To Income tax benefit - operating loss A/C $10,000,000
Explanation: Because the operating loss is less than the previous two years taxable income, AirParts cannot get back all taxes paid those two years. It can reduce taxable income from two years ago by $15 million(to zero) and last year’s taxable income by $10 million and get a refund of $5100000 of the taxes paid those years.
Receivable – income tax refund ($25 million × 40%) = 10,000,000
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