Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Fores Construction Company reported a pretax operating loss of $160 million for financial reporting purposes in 2018. Contributing to the loss were (a) a penalty

Fores Construction Company reported a pretax operating loss of $160 million for financial reporting purposes in 2018. Contributing to the loss were (a) a penalty of $15 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2018 and (b) an estimated loss of $20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2019. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2018 other than those described above. Taxable income in Foress two previous years of operation was as follows: 2016 $ 80 million 2017 30 million Required:

1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2018. Fores elects the carryback option.

2. What is the net operating loss reported in 2018 income statement?

3. Prepare the journal entry to record income taxes in 2019 assuming pretax accounting income is $75 million. No additional temporary differences originate in 2019.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Financial Accounting St Louis Community College At Meramac

Authors: Phillips/Libby/Libby

3rd Edition

007745412X, 978-0077454128

More Books

Students also viewed these Accounting questions