Fore Farms reported a pretax operating loss of $137 million for financial reporting purposes in 2021. 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 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. Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021. 2. What is the net operating loss reported in 2021 income statement

Question

03-04-2020
Business

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Fore Farms reported a pretax operating loss of $137 million for financial reporting purposes in 2021. 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 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. Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021. 2. What is the net operating loss reported in 2021 income statement

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letmeanswer letmeanswer · Answer 1 · 2020-04-09T14:05:44+02:00

Solution:

The situation under which the operational expense of the company exceeds the sales over a specified amount of time, typically a quarter or year, is defined as the operating loss.

Accounting profits relates to the interest that a corporation holds from paying for the related operating tax expenditures.

Computation of Taxable Operating Loss (2021)

Account Title Amount (In million)

Pre-tax operating Income (Loss) ($137.00)

Add: Non-deductible penalty $5.00

Add: Estimated loss contingency deductible in 2022 $12.00

Taxable operating income (Loss) ($120.00)