During 2018, its first year of operations, Baginski Steel Corporation reported a net operating loss of $375,000 forfinancial reporting and tax purposes. The enacted tax rate is 40%.Required:1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Assume the weight ofavailable evidence suggests future taxable income sufficient to benefit from future deductible amounts fromthe net operating loss carryforward.2. Show the lower portion of the 2018 income statement that reports the income tax benefit of the net operatingloss.

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.