Bradshaw Beverages began operations in 2009. 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. $$\begin{array} { c c }
\text { Year } & \text { Taxable Income } \
2009& - \$ 700,000 \
2010 & - \$ 500,000 \
2011 & - \$ 200,000 \
2012 & \$ 800,000 \
2013 & \$ 1,000,000
\end{array}$$ 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 2009. How much did the company pay in taxes during 2013?

Question

Bradshaw Beverages began operations in 2009. 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. $$\begin{array} { c c } 
\text { Year } & \text { Taxable Income } \
2009& - \$ 700,000 \
2010 & - \$ 500,000 \
2011 & - \$ 200,000 \
2012 & \$ 800,000 \
2013 & \$ 1,000,000
\end{array}$$ 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 2009. How much did the company pay in taxes during 2013?

Quizplus · Accepted Answer

The company can carry forward its losses from 2009, 2010, and 2011 to offset its taxable income in 2012 and 2013. The total loss from 2009 to 2011 is $1,400,000. In 2012, the company had a taxable income of $800,000, which can be offset by the losses, leaving $600,000 in losses to offset 2013 income. In 2013, the taxable income is $1,000,000, reduced by the remaining $600,000 loss, resulting in a taxable income of $400,000. The tax is 40% of $400,000, which is $160,000.

Bradshaw Beverages Began Operations in 2009 Assume That the Company Has Taken Full Advantage of the the Company's