Question 4 (Net Operating Loss)

The Little Mermaid had the following tax information.

Year Taxable Income Tax Rate Taxes Paid

2010 $300,000 35% $105,000

2011 $325,000 30% $97,500

2012 $400,000 30% $120,000

In 2013, the Little Mermaid suffered a net operating loss of $480,000, which it elected to carry back. The 2013 enacted tax rate is 29%. Prepare the Little Mermaids entry to record the effect of the loss carryback.