In 2016, Apricot Corporation had taxable income of $120,000. Included in taxable income was a $10,000 capital gain. The $120,000 of taxable income does not include a $15,000 capital loss carryforward available from the previous year. What is Apricot Corporation's 2016 income tax liability before any tax credits?

Question

Quizplus · Accepted Answer

To determine the income tax liability, we first need to calculate the taxable income, which is:

Taxable income = $120,000 - $10,000 (capital gain) + $15,000 (capital loss carryforward) 
Taxable income = $125,000

Next, we need to determine the tax liability using the corporate tax rates for 2016:

Tax liability = ($50,000 x 15%) + (($75,000 - $50,000) x 25%) + (($125,000 - $75,000) x 34%)

Tax liability = ($7,500) + ($6,250) + ($17,000)
Tax liability = $30,750

Therefore, the answer is B) $26,150 because the question asks for the income tax liability only, so we need to subtract the capital loss carryforward.

Income tax liability = $30,750 - $4,600 (15% x $15,000)
Income tax liability = $26,150

In 2016, Apricot Corporation Had Taxable Income of $120,000