Chapter 16, Problem 16.20E

Net operating loss carryforward

• LO16–7

During 2018, its first year of operations, Baginski Steel Corporation reported a net operating loss of $375,000 for financial 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 of available evidence suggests future taxable income sufficient to benefit from future deductible amounts from the net operating loss carryforward.

2. Show the lower portion of the 2018 income statement that reports the income tax benefit of the net operating loss.