Question

Conlin Corporation had the following tax information. Year Taxable Income Tax Rate Taxes Paid 2015 \(300,000 35% \)105,000 2016 325,000 30 97,500 2017 400,000 30 120,000 In 2018, Conlin suffered a net operating loss of $480,000, which it elected to carry back. The 2018 enacted tax rate is 29%. Prepare Conlin’s entry to record the effect of the loss carryback.

Short answer

Loss carrybackis used when an organization faces anet operating lossin thecurrent yearand tries to adjust theloss amount to the previous year'sincome tax return.

Step-by-step solution

Computation of loss carryback amount

$\begin{array}{rcl}\mathrm{Loss}\mathrm{Carryback}& =& \mathrm{Taxes}{\mathrm{paid}}_{2016}+\left[\right(\mathrm{Net}\mathrm{operating}\mathrm{loss}-\mathrm{Taxable}{\mathrm{Income}}_{2016}\times \mathrm{Tax}{\mathrm{rate}}_{2016}]\\ & =& \$97,500+\left[\right(\$480,000-\$325,000)\times 30\%]\\ & =& \$97,500+\$46,500\\ & =& \$144,000\\ & & \end{array}$

Journal entry

Conlin Corporation
Journal Entry
Date	Particulars	Debit	Credit
2018	Income tax refund receivables	$144,000
	Benefit due to loss carryback		$144,000
	(To record the loss carryback)