Problem 2-13 Loss Carryback and Carryforward The Bookbinder Company has made $15

Question

Problem 2-13
Loss Carryback and Carryforward

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 2016 the firm incurred a loss of $700,000. The firm will claim a tax credit at the time it files its 2016 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 40% tax rate on all income to ease the calculations. Enter your answers as positive values. If an amount is zero, enter "0".

Total check from U.S. Treasury $ ?

Firm's tax liability
2017:    $ ?
2018:    $ ?
2019:    $ ?
2020:    $ ?
2021:    $ ?

Prior Years 2014 2015 Profit earned $ ? $ ? Carry-back credit $ ? $ ? Adjusted profit $ ? $ ? Tax previously paid (40%) $ 60,000 $ 60,000    Tax refund: Taxes previously paid $ ? $ ?

Explanation / Answer

Prior Years 2014 2015 Profit earned $ 150000 150000 Carry-back credit 150000 150000 Adjusted profit 0 0 Tax previously paid (40%) 60000 60000 Tax refund: Taxes previously paid 60000 60000 As loss can be carryback for last 2 years so $150000 each will be deducted So now the amount left is $700000-$300000=$400000 Carryforward 2017 2018 2019 2020 2021 Profit earned $ 150000 150000 150000 150000 150000 Carry forward credit 150000 150000 100000 Adjusted profit 0 0 50000 150000 150000 Taxes to be paid 40% 0 0 20000 60000 60000

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