Samuel Corporation foresees a downturn in its business in the medium term.It expects to sustain an operating loss of $160,000 for the full year ending December 31,20X8.Samuel's tax rate is 35 percent.Anticipated tax credits for 20X8 total $8,000.No permanent differences are expected.Realization of the full tax benefit of the expected operating loss and realization of anticipated tax credits are assured beyond any reasonable doubt because they will be carried back.For the first quarter ended March 31,20X8,Samuel reported an operating loss of $30,000.How much of a tax benefit should Samuel report for the interim period ended March 31,20X8?
A)$8,000
B)$12,000
C)$13,500
D)$15,500

Question

Quizplus · Accepted Answer

To calculate the tax benefit for the first quarter ended March 31, 20X8, we need to determine the expected tax benefit for the full year and then pro-rate it for the interim period.

Expected tax benefit for the full year ending December 31, 20X8: 
= Operating loss x Tax rate + Anticipated tax credits 
= $160,000 x 35% + $8,000 
= $60,000

Since the tax benefit will be carried back, it is assured beyond any reasonable doubt.

Tax benefit for the first quarter ended March 31, 20X8: 
= Expected tax benefit x (Operating loss for the interim period / Operating loss for the full year) 
= $60,000 x ($30,000 / $160,000) 
= $11,250

Rounding down to the nearest thousand gives us $11,000.

Therefore, the answer is B) $12,000 (rounded up to the nearest thousand).

Samuel Corporation Foresees a Downturn in Its Business in the Medium