Question

Wynn Sheet Metal reported an operating loss of $188,000 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: 2014 2015 2016 2017 Taxable Tax Income Rates $74,000 30$ 84,000 30 94,000 40 74,000 45 Income Taxes Paid $22,200 25, 200 37,600 33,300 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 this question by entering your answers in the tabs below. Required 1 Calculation Required 1 G Required 2 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.) Rate % Tax $ Recorded as: Operating loss carryback Carried back - 2014 Carried back - 2015 = $ 0 Carried back - 2016 $ 0.00 Carried back - 2017 Total carryback Operating loss carryforward Carried forward

Answer 1

Required Calculation 1 (Amount Shown in thousands)

Operating Loss Carry back			Rate		Tax $	Recorded as
Carried back 2014	0	x	30%	=	0
Carried Back 2015	0	x	30%	=	0
Carried Back 2016	94	x	40%	=	37.60
Carried Back 2017	74	x	45%	=	33.30
Total Carry Back					70.90	Tax Expense(Benefits)
Operating loss Carry forward
Carried Forward	20	x	40%	=	8.00	Deferred Tax Asset

Assumption

Problem is solved on the assumption that the Corporation(Wynn) is situated in the country in which carry back of operating loss is allowed only two prior period.

Required 1 GJ

Journal entry to recognize the Income Tax benefits of the operating Loss. Wynn elects the carry back option

Event	General Journal	Debit	Credit
1	Income Tax Refund Receivable	70.90
	Income Tax expense(benefits)		70.90
2	Deferred Tax asset	8.00
	Income Tax Expense(Benefits)		8.00

Required 2

Lower portion of the 2018 income statement that reports the income tax benefits of the operating loss

Operating Loss before provision of Income Tax		$ -188.00
Income Tax Benefits
Income Tax expense( Income tax refund receivable due to carry back of   operating loss)	70.90
Income Tax Expense (Creation of Deferred Tax Asset due to carry forward of operating loss)	8.00
		$ 78.90
Net operating Loss		$ 109.10