Question

During 2018, its first year of operations, Baginski Steel Corporation reported a net operating loss of $460,000 for financial reporting and tax purposes. The enacted tax rate is 30%. Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Assume the weight of available evidence suggests future taxable income sufficient to benefit from future deductible amounts from the net operating loss carryforward. 2. Show the lower portion of the 2018 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 Required 2 Prepare the journal entry to recognize the income tax benefit of the net operating loss. Assume the weight of available evidence suggests future taxable income sufficient to benefit from future deductible amounts from the net operating loss carryforward. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.) View transaction list Journal entry worksheet Record 2018 income tax benefit from operating loss. Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal

Answer 1

Net Operating Loss ( NOL )

Couple of cases NOL arises – like :

1. Companies deductions exceed taxable Income
2. A NOL can benefit a company by reducing taxable income in future tax years
3. Important point to note – NOL may now be carried forward indefinitely until the loss is fully recovered but they are limited to 80% of the taxable income in any one period

Net operating Loss ( NOL)	Amnt($)
During 2018 , forst year operation,
Baginski Steel corporation reported Net loss	4,60,000
amount to
The enacted tax rate	30%
We need to derived deferred tax asset and tax benefit due
to LOSS
Journal Entry	Debit($)	Credit($)
Deferred tax assets	1,38,000
Income Tax Benefit		1,38,000
($460,000*30%)
	Amnt($)
So Net operating Loss	-4,60,000
Add- Deferred Tax asset - benefit on tax	1,38,000
Net operating Loss ( NOL)	-3,22,000