An August 11, 2020 article from WorldOil Magazine had the following headline: "Marathon Sets Up for $1.1 Billion Tax Refund via
Coronavirus Aid Law." The article goes on to indicate, "That measure included a tax provision that allows companies to immediately
deduct net operating losses and apply them to previous returns for five years from 2018, 2019, and 2020 - instead of only applying
those deductions to future years. The benefit is supercharged because deductions taken before the 2017 tax overhaul can be claimed
at the 35% corporate tax rate instead of the current 21%."
Marathon Petroleum Corporation's June 30, 2020, 100 states the following: "As of June 30, 2020, the estimated cash tax refund
resulting from the NOL carryback provided in the CARES Act is $1.1 billion and arises solely due to taxes paid in prior years. Absent the
CARES Act, we would have recorded a deferred tax asset for the expected NOL carryforward under the currently effective federal
income tax rate."
Required:
1. Based only on the information provided above, prepare a journal entry that records the refund expected from applying the NOL
carryback.
2. Assuming a tax rate of 35% in prior years, how much pretax net operating loss did Marathon carryback to prior periods to get the
refund indicated?
3. Assume now that the CARES Act was not in effect and Marathan is not eligible for any carryback. Prepare a journal entry that
records any tax expense (benefit) associated with creating a NOL carryforward, assuming a tax rate of 21% for current and future
periods.
4. Whether Marathon could do an NOL carryback or an NOL carryforward, it would recover or avoid some taxes by utilizing the
NOL. How much extra tax did it recover or avoid due to the difference in tax rates between prior years and future years by being
able to use a carryback?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3 Required 4
Prepare a journal entry that records the refund expected from applying the NOL carryback.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answer in
millions.
View transaction list
View journal entry worksheet
Transaction
General Journal
A
Receivable - Income tax refund
Income tax benefit
Deb
Cradl
1,100
1,100
