Question
Fores Construction Company reported a pretax operating loss of $150 million for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $10 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of 20 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 25 million
Explanation / Answer
Ans 2: What is the net operating loss reported in 2016 income statement? (Enter your answer in millions.) Net Operating Loss $90 million Ans3. Prepare the journal entry to record income taxes in 2017 assuming pretax accounting income is $70 million. No additional temporary differences originate in 2017 General Journal Debit Credit Income tax expense 32 Deferred tax asset 20 Income tax payable 12 Workings: 1 $ in millions 2014 2015 Current Year 2016 Deductible Amts FUTURE Accounting Loss -150 Permannent Difference Penalty 10 Temporary Difference Loss Contingency 20 -20 Taxable Loss -120 Loss Carryback -75 -25 100 Loss Carryforward 20 -20 0 -40 2 ($ in millions) Operating loss before income taxes 150 Less: Income tax benefit Tax refund from loss carryback (30+10) 40 Future tax benefits 20 60 Net Operating Loss (150-60) 90 3 ($ in millions) Current Year 2017 Future Deductible Amounts Pretax accounting income 70 Temporary differences: Loss contingency -20 Operating loss carryforward -20 Taxable income (income tax return) 30 0 Enacted tax rate 40% 40% Tax Payable 12 0 Please let me know for any clarifications.