Chapter 16, Problem 16.22E

1.

To determine

Net Operating Loss Carryback

The net operating loss is considered as negative taxable income. It can be used in other fiscal year to offset the taxable income. The net operating loss carry back helps the companies to get reduction in the taxes from the past profitable years, in the form of tax refund, for the tax paid on the profit earned on those years.

Net Operating Loss Carryforward

The net operating loss is considered as negative taxable income. When the tax-deductible expenses exceed the taxable revenues, the net operating loss is carry forwarded as it helps in getting deductions in future taxable amount.

To prepare: journal to recognize the income tax benefit of the net operating loss.

2.

To determine

To show: The lower portion of the 2016 income statement that reports the income tax benefit of the net operating loss.