Fore Farms reported a pretax operating loss of $137 million for financial reporting purposes in 2024. 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 2024 and (b) an estimated loss of $12 million from accruing a loss contingency. The loss will be tax deductible when paid in 2025. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2024 other than those described above. Taxable income in Fores’s two previous years of operation was as follows:

Required:
1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2024. Assume Fore will carry back its NOL to prior years.
2. Show the lower portion of the 2024 income statement that reports the income tax benefit of the net operating loss.
3. Prepare the journal entry to record income taxes in 2025 assuming pretax accounting income is $160 million. No additional temporary differences originate in 2025.

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2022 2023 $80 million $32 million