The Bookbinder Company has made $150,000 before taxes during each of the last 15
ID: 2742055 • Letter: T
Question
The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2013 the firm incurred a loss of $525,000. The firm will claim a tax credit at the time it files its 2013 income tax return, and it will receive a check from the U.S. Treasury. Show how it calculates this credit, and then indicate the firm's tax liability for each of the next 5 years. Assume a 35% tax rate on all income to ease the calculations. Enter your answers as positive values. If an amount is zero, enter "0".
Prior Year Profit earned Carry-back credit Adjusted profit Tax previously paid (35%) Tax refund: Taxes previously paid 2011 2012 Total check from U.S. Treasury $ b. Firm's tax liability 2014: $ 2015: $ 2016: $ 2017: $ 2018: $Explanation / Answer
2011 2012
Profit Earned $150000 $150000
Carry back credit 0 0
Anjusted profit 0 0
Tax previously paid $ 52500 $52500
Tax refund previously refund 0 0
Total check from US tresure is =0
Because we will not get tax back if we get losses,but we can forward the losses in the coming years.
Firms Tax liability
2014 Profit=$150000 Tax =35% tax amount=$52500 Carryforward loss=$525500
There is no tax liability in 2014 tax will be deduct from loss so $525500-$52500=$473000 Carryforward loss.
2015 Same like 2014 Carry forward loss $473000-$52500=$420500
2016 Carry forward loss=$420500-$52500Tax=$368000
2017 Carryforward loss $368000-$52500=$315500
2018Carryforward loss$315500-$52500tax=263000
Assuming that we will get $150000 on every year
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