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Bradshaw Beverages began operations in 2010. The table below contains the company's taxable income during each...

Bradshaw Beverages began operations in 2010. The table below contains the company's taxable income during each year of its operations. Notice that the company lost money in each of its first three years. The corporate tax rate has been 40% each year. Year Taxable Income 2010 ?$ 700,000 2011 ?$ 500,000 2012 ?$ 200,000 2013 $ 800,000 2014 $1,000,000 Assume that the company has taken full advantage of the Tax Code's carry-back, carry-forward provisions, and assume that the current provisions were applicable in 2010. How much did the company pay in taxes during 2014? $160,000 $168,000 $176,400 $185,220 $194,481

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Answer #1

year 2010:

Taxable income = -700,000

Carry forward used = 0

EBT after forward applied = 0

Unused carryable amount = 700,000

Year 2011:

Taxable income = -500,000

Carry forward used = 0

EBT after forward applied = 0

Unused carryable amount = 700,000 + 500,000 = 1, 200,000

2012:

Taxable income = -200,000

Carry forward used = 0

EBT after forward applied = 0

Unused carryable amount = 1,200,000 + 200,000 = 1,400,000

2013:

Taxable income = 800,000

Carry forward used = 800,000

EBT after forward applied = 0

Unused carryable amount = 1,400,000 - 800,000 = 600,000

2014:

Taxable income = 1000,000

Carry forward used = 6000,000

EBT after forward applied = 400,000

Unused carryable amount = 0

Tax liability = EBT * tax rate

Tax liability = 400,000 * 0.4 = 160,000

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