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 EPA FOR VIOLATION OF A FEDERAL LAW AND PAID IN 2021 AND (B) AN ESTIMATE LOSS OF $12 MILLION FROM ACCRUING A LOSS CONTINGENCY. THE LOSS WILL BE A 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.

REQUIRE:

1. PREPARE THE JOURNAL ENTRY TO RECOGNIZE THE INBCOME TAX BENEFIT OF THE NET OPERATING LOSS IN 2021.

2. SHOW THE LOWER PORTIONS OF THE 2021 INCOME STATEMENT THAT REPORTS THE INCOME TAX BENEFIT OF THE NET OPERATING LOSS.

3. PREPARE THE JOURNAL ENTRY TO RECORD INCOME TAXES IN 2022 ASSUMING PRETAX ACCOUNTING INCOME IS $160 MILLION. NO ADDITIONAL TEMPORARY DIFFERENCES ORIGINATE IN 2022.

FORE FARMS Requirement 1: Calculations (in millions) Current Year 2021 Future Deductible Amounts Accounting Loss Permanent difference: Federal fine not deductible Temporary differences: Loss contingency Taxable loss Loss carryforward Enacted tax rate Tax payable (refundable) Deferred tax asset Deferred tax asset: Ending balance Less: beginning balance Change needed to achieve desired balance Journal entry at the end of 2021 Deferred tax asset Income tax expense Requirement 2: Calculations (in millions) Operating loss before income taxes Income tax benefit Tax savings from NOL carryforward Net loss Requirement 3: Current Year 2022 Future Deductible Amounts Pretax accounting Income Temporary differences: Loss contingency NOL carryforward Taxable income Enacted tax rate Tax payable Deferred tax asset Deferred tax asset: Tax Payable DTA Ending balance DTA change Change needed to achieve desired balance Journal entry at the end of 2022 Income tax expense Deferred tax asset Income tax payable