During 2011, its first year of operations, Baginski Steel Corporation reported an operating loss of $375,000 for financial reporting and tax purposes. The enacted tax rate is 40%.

Required:

1. Prepare the journal entry to recognize the income tax benefit of the operating loss. Assume the weight of available evidence suggests future taxable income sufficient to benefit from future deductible amounts from the operating loss carryforward.

2. Show the lower portion of the 2011 income statement that reports the income tax benefit of the operating loss.