CB Properties Corporation reported the following results for its first three years of operations: There were no permanent or reversible differences during these three years. Assume an income tax rate of 30% for 2016 and 2017, and 40% for 2018, and that any deferred tax asset recognized is more likely than not to be realized. If CB Properties elects to use the carryforward provisions and not the carryback provisions, what income (loss)is reported for 2017?

Question

CB Properties Corporation reported the following results for its first three years of operations:  There were no permanent or reversible differences during these three years. Assume an income tax rate of 30% for 2016 and 2017, and 40% for 2018, and that any deferred tax asset recognized is more likely than not to be realized. If CB Properties elects to use the carryforward provisions and not the carryback provisions, what income (loss)is reported for 2017?

Quizplus · Accepted Answer

Since there were no permanent or reversible differences during the three years, the taxable income for each year will be equal to the financial income. Therefore, the taxable income for 2017 will be $240,000 ($800,000 - $560,000). However, since CB Properties elects to use the carryforward provisions and not the carryback provisions, it will be able to offset this taxable income with the NOL carryforward from 2016 of $240,000. This will result in zero taxable income and zero income tax expense for 2017. Therefore, the income (loss) reported for 2017 will be $(240,000) - $0 = $(240,000). However, the question asks for income (loss), so the answer will be $(216,000) ($(240,000) + $24,000).

CB Properties Corporation Reported the Following Results for Its First