Cabot company reported a pretax operating loss of $50,000 for financial reporting and tax purposes in 2018. the enacted tax rate is 40% for 2018 and subsequent years. assume that cabot requests a refund of taxes already paid by electing a loss carryback. taxable income, tax rates, and income taxes paid in cabot's first four years of operations were as follows: taxable tax taxes income rates paid 2014 $30,000 30% $9,000 2015 35,000 30% 10,500 2016 42,000 35% 14,700 2017 40,000 40% 16,000 required: (1) prepare the journal entry to record cabot's income taxes for the year 2018. show well-labeled computations. (2) compute cabot's net loss for 2018.

Answer and Explanation:

1.

Net Operating loss carryback  Amount  Rate of Tax  TaxRecorded as

Carried back - 2014               $0.0          30%         $0.0  

Carried back - 2015               $0.0          30%         $0.0  

Carried back - 2016           $42,000        35%$14,700.0  

Carried back - 2017           $8,000.0       40%$3,200.0  

Total Carryback                 $50,000.0                    $17,900.0

Journal Entries - Cabot Company

Date                Particulars                                  DebitCredit

31-Dec-18      Receivables - Income Tax Refund  $17,900

          To Income tax benefit - Net Operating Loss           $17,900  

2. Cabot's net loss for 2018 = -$50,000 + $17,900

                                          = ($32,100)