Red Lantern Company experienced a net operating loss of $654,000 in 2015. The company reported taxable income of $543,000 in 2013 and $321,000 in 2014. The tax rate for all years is 35%. Assuming the company uses the carryback provisions for the net operating loss, prepare the following for the year of the loss:

a) The necessary journal entry to record the NOL carryback.
b) A partial income statement beginning with the net loss before benefit.

What will be an ideal response?

a) Journal Entry:
Income Tax Refund Receivable

Income Tax Benefit

*(654,000 × 35%)

b) Partial Income Statement:
Net loss before tax benefit $(654,000)
Income tax benefit 228,900
Net loss after tax benefit $(425,100)