Fores Construction Company reported a pretax operating loss of $200 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 30 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 Foresâs two previous years of operation was as follows:
2014 $ 105 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).)
2. What is the net operating loss reported in 2016 income statement? (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
3. Prepare the journal entry to record income taxes in 2017 assuming pretax accounting income is $100 million. No additional temporary differences originate in 2017. (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).)
| Fores Construction Company reported a pretax operating loss of $200 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 30 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 Foresâs two previous years of operation was as follows: |
| 2014 | $ | 105 | 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).) |
| 2. | What is the net operating loss reported in 2016 income statement? (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) |
| 3. | Prepare the journal entry to record income taxes in 2017 assuming pretax accounting income is $100 million. No additional temporary differences originate in 2017. (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).) |
Related questions
Fores Construction Company reported a pretax operating loss of$250 million for financial reporting purposes in 2016. Contributingto the loss were (a) a penalty of $15 million assessed by theEnvironmental Protection Agency for violation of a federal law andpaid in 2016 and (b) an estimated loss of 10 million from accruinga loss contingency. The loss will be tax deductible when paid in2017. The enacted tax rate is 40%. There were no temporarydifferences at the beginning of the year and none originating in2016 other than those described above. Taxable income in Foresâstwo previous years of operation was as follows:
2014- $130 million
2015- 75 million
| Required: |
| 1. | Prepare the journal entry to recognize the income tax benefit ofthe 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 youranswers in millions (i.e., 10,000,000 should be entered as10).) 2. What is the net operating loss reported in 2016income statement (Enter your answers in millions (i.e., 10,000,000should be entered as 10).) 3. Prepare the journal entry to record income taxes in2017 assuming pretax accounting income is $115 million. Noadditional temporary differences originate in 2017. |
Sherrod, Inc., reported pretax accounting income of $68 millionfor 2016. The following information relates to differences betweenpretax accounting income and taxable income: |
| a. | Income from installment sales of properties included in pretaxaccounting income in 2016 exceeded that reported for tax purposesby $6 million. The installment receivable account at year-end had abalance of $8 million (representing portions of 2015 and 2016installment sales), expected to be collected equally in 2017 and2018. |
| b. | Sherrod was assessed a penalty of $4 million by theEnvironmental Protection Agency for violation of a federal law in2016. The fine is to be paid in equal amounts in 2016 and 2017. |
| c. | Sherrod rents its operating facilities but owns one assetacquired in 2015 at a cost of $56 million. Depreciation is reportedby the straight-line method assuming a four-year useful life. Onthe tax return, deductions for depreciation will be more thanstraight-line depreciation the first two years but less thanstraight-line depreciation the next two years ($ in millions): |
| Income Statement | Tax Return | Difference | |||||||
| 2015 | $ | 14 | $ | 18 | $ | (4 | ) | ||
| 2016 | 14 | 22 | (8 | ) | |||||
| 2017 | 14 | 8 | 6 | ||||||
| 2018 | 14 | 8 | 6 | ||||||
| $ | 56 | $ | 56 | $ | 0 | ||||
| d. | Warranty expense of $5 million is reported in 2016. For taxpurposes, the expense is deducted when costs are incurred, $4million in 2016. At December 31, 2016, the warranty liability was$4 million (after adjusting entries). The balance was $3 million atthe end of 2015. |
| e. | In 2016, Sherrod accrued an expense and related liability forestimated paid future absences of $14 million relating to thecompanyâs new paid vacation program. Future compensation will bedeductible on the tax return when actually paid during the next twoyears ($8 million in 2017; $6 million in 2018). |
| f. | During 2015, accounting income included an estimated loss of $2million from having accrued a loss contingency. The loss is paid in2016 at which time it is tax deductible. |
| Balances in the deferred tax assetand deferred tax liability accounts at January 1, 2016, were $2.0million and $2.4 million, respectively. The enacted tax rate is 40%each year. 1. Determine the amounts necessary to record income taxes for2016 and prepare the appropriate journal entry. 2. What is the 2016 net income? 3. SHow how any deferred tax amounts should be classified andreported in the 2016 balance sheet. |
Wynn Sheet Metal reported an operating loss of $202,000 forfinancial reporting and tax purposes in 2016. The enacted tax rateis 40%. Taxable income, tax rates, and income taxes paid in Wynnâsfirst four years of operation were as follows: |
| Taxable Income | Tax Rates | Income Taxes Paid | ||||
| 2012 | $ | 81,000 | 30 | % | $ | 24,300 |
| 2013 | 91,000 | 30 | 27,300 | |||
| 2014 | 101,000 | 40 | 40,400 | |||
| 2015 | 81,000 | 45 | 36,450 | |||
| Required: |
| 1. | Complete the following table given below and prepare the journalentry to recognize the income tax benefit of the operating loss.Wynn elects the carryback option. (If no entry is requiredfor a transaction/event, select "No journal entry required" in thefirst account field. Enter your answers in thousands. Leave no cellblank, enter "0" wherever applicable.) |
| 2. | Show the lower portion of the 2016 income statement that reportsthe income tax benefit of the operating loss. (Amounts tobe deducted should be indicated with a minus sign. Enter youranswers in thousands.) |
