Hammaker Corp began operations in 2016 and reported taxable

Hammaker Corp. began operations in 2016 and reported taxable net income of $10 million and $4 million in 2016 and 2017, respectively. In 2018, Hammaker reports a net operating loss (NOL) of $16 million, and elects to carry back that NOL to the extent possible. The tax rate for the years 2016 through 2018 is 35%, but the enacted tax rate for 2019 and later years will be 40%. As part of year-end adjusting entries, what total tax benefit will Hammaker record as a result of the 2018 NOL?

Multiple Choice

$5,700,000

$4,900,000

$6,400,000

$5,600,000

Solution

Total tax benefit as a result of the 2018 NOL = (10000000+4000000)*35%+(2000000*40%)= 5700000 Option 1 is correct