Fores Construction Company reported a pretax operating loss of $135 milion for f
ID: 2559788 • Letter: F
Question
Fores Construction Company reported a pretax operating loss of $135 milion for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2017 The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2016 other than those described above. Taxable income in Fores's two previous years of operation was as follows 2014 $75 million 2015 30 million Required 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2016. Fores elects the carryback option. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) View transaction list Journal entry worksheet Record 2016 income taxes Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journalExplanation / Answer
($ in millions)
Current Future
Prior Years Year Deductible
2014 2015 2016 Amounts
[total]
Accounting loss (135)
Non-temporary difference:
Fine paid 5
Temporary differences:
Loss contingency 10 (10)
Taxable loss (120)
Loss carryback (75) (30) 105
Loss carryforward 15 (15)
0 (25)
Enacted tax rate 40% 40% 40% 40%
Tax payable (refundable) (30) (12) 0
Deferred tax asset (10)
Deferred tax asset:
Ending balance $ 10
Less: beginning balance (0)
Change in balance $10
Journal entry at the end of 2016:
Receivable – income tax refund ($30 + 12) 42
Deferred tax asset (determined above) 10
Income tax benefit 52
2.Net Operating loss reported in 2016 income statement
($ in millions)
Operating loss before income taxes $135
Less: Income tax benefit:
Tax refund from loss carryback $42
Future tax benefits 10 52
Net operating loss $ 83
3.Prepare the journal entry to record income taxes in 2017 assuming pretax accounting income is $60 million. No additional temporary differences originate in 2017
Income tax expense 80
Deferred Tax asset 40
Income Tax payable 40
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