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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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