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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Tally & Co. incurred a pretax operating loss of $100,000 in its first year of operations for both financial reporting and income tax purposes. However, it expects to be profitable in the future. Its expected future income tax rate is 25%. Prepare Tally & Co.’s journal entry to record its operating loss carryforward.

To determine

Prepare journal entry to record the operating loss carry forward.

Explanation

Net Operating Loss Carry forward:  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.

Prepare journal entry to record the operating loss carry forward:

DateAccounts title and explanationPost Ref.DebitCredit
2019    
December 31Deferred Tax Asset $25,000 
     Income Tax Benefit From Operating Loss Carry Forward   $25,000
 (To record deferred tax asset for carry fo...

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