Question

Blass Brothers lost money its first year of operation, but has been profitable ever since. Specifically,...

Blass Brothers lost money its first year of operation, but has been profitable ever since. Specifically, its taxable income (EBT) has been as follows:

Year

Taxable Income

2010

(1,000,000)

2011

   100,000

2012

   200,000

2013

   500,000

2014

   600,000


The company's tax rate is 40 percent. Assume that current carry back and carry forward provisions were available in prior years. What is the amount of tax the company paid in the most recent year?

a.

$200,000
b.

$ 80,000
c.

$240,000
d.

$160,000
e.

$120,000
Business   Accounting   
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Answer #1

> loss of year 2010 (1000000) will be carry forward to upcoming years so no tax the company will paid in this year

> loss of amount 100000 of year 2010 will be set off against the profit of year 2011

> loss of amount 200000 of year 2010 will be set off against the profit of year 2012

> loss of amount 500000 of year 2010 will be set off against the profit of year 2013

> loss of amount 200000 of year 2010 will be set off against the profit of year 2014 and the balance amount 400000 will be taxable in year 2014

> so the amount of tax will be 40 % of 400000 = 400000*40% = 160000

> Answer (D) is correct option 160000

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