Appalachian Airlines began operating in 2010. The company lost money the first y
ID: 2784770 • Letter: A
Question
Appalachian Airlines began operating in 2010. The company lost money the first year but has been profitable ever since. The company's taxable income (EBT) for its first five years is listed below. Each year the company's corporate tax rate has been 40%.
Year
Taxable Income
2010
$4,000,000
2011
$1,000,000
2012
$2,000,000
2013
$3,000,000
2014
$5,000,000
Assume that the company has taken full advantage of the Tax Code's carry-back, carry-forward provisions and that the current provisions were applicable in 2010. How much did the company pay in taxes in 2013?
Year
Taxable Income
2010
$4,000,000
2011
$1,000,000
2012
$2,000,000
2013
$3,000,000
2014
$5,000,000
Explanation / Answer
Tax liability = (EBT)(Tax rate)
Year Taxable Income Carry-Forward Used EBT After Forward Applied Unused Carryable Amount
Since there is a $4,000,000 loss in 2010, this amount can be carried forward to offset future taxable income
Similarly for the following years,
Tax Paid = 0.4 x 2,000,000 = 800,000
Year Taxable Income Carry-Forward EBT After Forward Unused Carryable Amount 2010 $ (4,000,000) $ $ $ 4,000,000Related Questions
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