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Wynn Farms reported a net operating loss of $120,000 for financial reporting and tax purposes in 2024. The enacted tax rate is 25%. Taxable income,

Wynn Farms reported a net operating loss of $120,000 for financial reporting and tax purposes in 2024. The enacted tax rate is 25%. Taxable income, tax rates, and income taxes paid in Wynns first four years of operation were as follows:

Taxable Income Tax Rates Income Taxes Paid
2020 $ 65,000 20% $ 13,000
2021 75,000 20 15,000
2022 100,000 25 25,000
2023 65,000 40 26,000

Required:

  1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. NOL carrybacks are not allowed for most companies, except for property and casualty insurance companies as well as some farm-related businesses. Assume Wynn is one of those businesses.
  2. Show the lower portion of the 2024 income statement that reports the income tax benefit of the net operating loss.

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