16. Assume $510,000 that the Blues Corporation is considering the acquisition of
ID: 2593484 • Letter: 1
Question
16. Assume $510,000 that the Blues Corporation is considering the acquisition of the Clues Company. The latter has a tax loss carry forward. Projected earnings for the Blues Corp. are as follows: Total Values 20x2 20X3 20x1 $165,000$245,000 $400,000$810,000 Before-tax income Taxes 57.750 85,750 140,000 283,500 (35%) Income available to stockholders $107,250 $159,250 $260,000 $526,500 a. How much will the total taxes of Western Exploration Corp. be reduced as a result of the tax los carryforward (3pts)? How much will the total income available to stockholders be for the three years if the acquisition occurs? Use the same format as that in the text (3pts). b.Explanation / Answer
a. Reduction in taxes due to tax loss carry forward:
= loss * tax rate
= $510,000*35% = $178,500
b. Computation of total income available to shareholder's for the three years (if the acquisition occurs):
Year
2001
2002
2003
TOTAL
Before tax income
165,000
245,000
400,000
810,000
Less: Tax loss carry forward
165,000
245,000
100,000
510,000
Net income taxable
-
-
300,000
300,000
Less: taxes at 35%
105,000
105,000
Income available to shareholder's (After taxes)
165,000
245,000
400,000-105,000= 295,000
705,000
Year
2001
2002
2003
TOTAL
Before tax income
165,000
245,000
400,000
810,000
Less: Tax loss carry forward
165,000
245,000
100,000
510,000
Net income taxable
-
-
300,000
300,000
Less: taxes at 35%
105,000
105,000
Income available to shareholder's (After taxes)
165,000
245,000
400,000-105,000= 295,000
705,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.