Fores Construction Company reported a pretax operating loss of $135 million for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2017. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2016 other than those described above. Taxable income in Fores’s two previous years of operation was as follows: 2014 $75 million 2015 $30 million Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2016. Fores elects the carryback option. 2. Show the lower portion of the 2016 income statement that reports the income tax benefit of the net operating loss. 3. Prepare the journal entry to record income taxes in 2017 assuming pretax accounting income is $60 million. No additional temporary differences originate in 2017.
Fores Construction Company reported a pretax operating loss of $135 million for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2017. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2016 other than those described above. Taxable income in Fores’s two previous years of operation was as follows: 2014 $75 million 2015 $30 million Required: 1. Prepare the
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