Net Operating Loss (NOL) Carryback and Carry forward
The following historical financial data are available for the Bradshaw Manufacturing Company.
|
Year |
Income |
Tax Rate |
Tax Paid |
|
2005 |
$175,000 |
40% |
$ 70,000 |
|
2006 |
230,000 |
42 |
96,600 |
|
2007 |
310,000 |
35 |
108,500 |
In 2008, Bradshaw suffered an $820,000 net operating loss due to an economic recession.
The company elects to use the carryback provision in the tax law.
1. Using the information given, calculate the refund due arising from the loss carryback and the amount of the loss available to carry forward to future periods. Assume that the enacted tax rate is 34% for 2008 and all future years.
2. Prepare the entry necessary to record the loss carryback and carry forward. Assume that there will be sufficient taxable income in the carry forward period to realize all benefits from NOL carry forwards.
3. Using the answers from (1) and (2), prepare the bottom portion of the 2008 income statement reflecting the effect of the loss carryback and carry forward.