Fore Farms reported a pretax operating loss of $200 million for financial reporting purposes in 2024. Contributing to the loss were (a) a penalty of $8 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2024 and (b) an estimated loss of $30 million from accruing a loss contingency. The loss will be tax deductible when paid in 2025. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2024 other than those described above. 1) Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2024. 2) What is the net loss reported in 2024 income statement? 3) Prepare the journal entry to record income taxes in 2025 assuming pretax accounting income is $215 million. No additional temporary differences originate in 2025.
Fore Farms reported a pretax operating loss of $200 million for financial reporting purposes in 2024. Contributing to the loss were (a) a penalty of $8 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2024 and (b) an estimated loss of $30 million from accruing a loss contingency. The loss will be tax deductible when paid in 2025. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2024 other than those described above. 1) Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2024. 2) What is the net loss reported in 2024 income statement? 3) Prepare the journal entry to record income taxes in 2025 assuming pretax accounting income is $215 million. No additional temporary differences originate in 2025.
Chapter17: Tax Practice And Ethics
Section: Chapter Questions
Problem 35P
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