Fore Farms reported a pretax operating loss of $210 million forfinancial reporting purposes in 2021. Contributing to the loss were(a) a penalty of $10 million assessed by the EnvironmentalProtection Agency for violation of a federal law and paid in 2021and (b) an estimated loss of $20 million from accruing a losscontingency. The loss will be tax deductible when paid in2022.
The enacted tax rate is 25%. There were no temporary differences atthe beginning of the year and none originating in 2021 other thanthose described above.
Required:
1. Prepare the journal entry to recognize theincome tax benefit of the net operating loss in 2021.
2. What is the net operating loss reported in 2021income statement?
3. Prepare the journal entry to record incometaxes in 2022 assuming pretax accounting income is $225 million. Noadditional temporary differences originate in 2022.
