Question

Problem 2-13
Loss Carryback and Carryforward

The Bookbinder Company has made $200,000 before taxes during each of the last 15 years, and it expects to make $200,000 a year before taxes in the future. However, in 2016 the firm incurred a loss of $675,000. 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 35% tax rate on all income to ease the calculations. Enter your answers as positive values. If an amount is zero, enter "0".

1. Prior Years	2014	2015
   Profit earned	$	$
   Carry-back credit
   Adjusted profit	$	$
   Tax previously paid (35%)
   Tax refund: Taxes previously paid	$	$

   
   Total check from U.S. Treasury $   
   
2. Firm's tax liability
   2017:    $   
   2018:    $   
   2019:    $   
   2020:    $   
   2021:    $   

Answer 1

a. Prior Years	2014	2015
Profit earned	200000	200000
Carry-back credit	200000	200000
Adjusted profit	0	0
Tax previously paid (35%)	70000	70000
Tax refund: Taxes previously paid	70000	70000
Total check from U.S. Treasury $			140000
b. Firm's tax liability	Profit before tax	NOL Carry forward	Taxable Profits	Tax Liability at 35%
2017:    $	200000	200000	0	0
2018:    $	200000	75000	125000	43750
2019:    $	200000	0	200000	70000
2020:    $	200000	0	200000	70000
2021:    $	200000	0	200000	70000