Question

fore farms reported a pretax operating loss of $137 million for financial reporting purposes in 2021. Contributing to the loss were a penalty of $5 million assessed by the environmental protection agency for violation of a federal law and paid in 2021, and b.) an estimated loss of $12 million from accruing a loss contingency. The loss will be tax deductible when paid in 2022. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2021 other than those described above. Taxable income in Fores's two previous years were as follows: 2019 $80 million 2020 $32 million. Required: 1. Prepare the journal entry to recognize the income tax benefit of teh net operating loss in 2021. Assume Fore will carry back its NOL to prior years. 2. Show the lower portion of the 2021 income statement that reports the income tax benefit of the net operating loss. 3. Prepare the journal entry to record income taxes in 2022 assuming pretax accounting income is $160 million.

Please help with all calculations. I provided a screenshot of the excel sheet as well. This is confusing.

FORE FARMS Requirement 1: Calculations (in millions) Prior Years 2019 2020 Current Year 2021 Future Deductible Amounts Accounting Loss Permanent difference: Federal fine not deductible Temporary differences: Loss contingency Taxable loss NOL carryback NOL carryforward Enacted tax rate Tax payable (refundable) Deferred tax asset Deferred tax asset: Ending balance Less: beginning balance Change needed to achieve desired balance Journal entry at the end of 2021 Receivable - Income tax refund Deferred tax asset Income tax expense Requirement 2: Calculations (in millions) Operating loss before income taxes Income tax benefit Tax refund from NOL carryback Tax savings from NOL carryforward Net loss

Answer 1

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Requirement -1		Prior Years		Current Year	Future Deductible
		2019	2020	2021	Amounts
Accounting Loss				$                  (137)
Permanent Difference:
Federal Fine not deductible				$                         5
Temporary Difference:
Loss Contingencies				$                       12	$                                   (12)
Taxable Loss				$                  (120)
NOL Carryback		$                     (80)	$                                   (32)	$                     112
NOL Carryforward				$                         8	$                                     (8)
				$                        -	$                                   (20)
Enacted tax rate		25%	25%	25%	25%
Tax Payable (Refundable)		$                     (20)	$                                     (8)	$                        -
Deferred Tax Assets					$                                     (5)
Deferred Tax Assets:
Ending Balance		$                         5
Less: Beginning Balance		$                        -
Changes needed to achieve desired balance		$                         5
Journal entry at the end of 2021:
Receivable - Income tax refund	$          28
Deferred Tax Assets		$                         5
Income tax expense		$                       33
Requirement -2
Operating Loss before income tax		$                  (137)
Income tax benefit:
Tax Refund from NOL carryback		$                       28
Tax savings from NOL carryforward		$                         5
Net Loss		$                  (104)
		Current Year	Future Deductible
Requirement -3		2022	Amounts
Pretax accounting income		$                     160
Temoporary differences:
Loss contingency		$                     (12)
NOL Carryforward		$                       (8)
Taxable Income		$                     140	$                                      -
Enacted tax rate		25%	25%
Tax Payable (Refundable)		$                       35
Deferred Tax Assets			$                                      -
Deferred Tax Assets:
Tax Payable		$                       35
DTA Ending Balance		$                        -
DTA Change		$                       (5)
Changes needed to achieve desired balance		$                       40
Journal entry at the end of 2022:
Income tax expense	$          40
Deferred Tax Assets		$                         5
Income tax payable		$                       35