Final answer:
The journal entry to recognize the income tax benefit of Fore Farms' net operating loss in 2021 would debit Income Tax Benefit and credit Deferred Tax Asset for $67 million. The net operating loss in the 2021 income statement is $268 million. For 2022, the journal entry to record income taxes assuming a pretax income of $288 million is a debit to Income Tax Expense and a credit to Income Tax Payable for $72 million.
Step-by-step explanation:
Income Tax Benefit and Net Operating Loss
The question pertains to determining the income tax benefit from a net operating loss (NOL) that Fore Farms reported for financial reporting purposes and creating the journal entries accordingly. To address the student's requirements:
1. The journal entry in 2021 to recognize the income tax benefit due to the NOL, assuming a tax rate of 25% and carrying back the NOL to previous profitable years, would be:
Credit: Deferred Tax Asset $67 million
2. The net operating loss reported in the 2021 income statement would be $268 million, as it reflects the full amount of loss before any tax effects.
Debit: Income Tax Expense $72 million (25% of $288 million)
Credit: Income Tax Payable $72 million
Note: As no additional temporary differences are stated for 2022, and the previous year's NOL has already been accounted for, no additional entries relating to NOL are required for 2022.