During 2013,Sparrow Corporation,a calendar year C corporation,had operating income of $425,000,operating expenses of $280,000,a short-term capital loss of $10,000,and a long-term capital gain of $25,000.How much is Sparrow's tax liability for 2013?
A)$42,650.
B)$42,800.
C)$45,650.
D)$62,400.
E)None of the above.

Question

Quizplus · Accepted Answer

Sparrow's taxable income can be calculated as follows: 
Operating income - Operating expenses = Taxable income
$425,000 - $280,000 = $145,000

Short-term capital loss can be used to offset other capital gains, as well as up to $3,000 of ordinary income. Therefore, Sparrow can use $3,000 of the short-term capital loss to offset its ordinary income.

Taxable income - $3,000 (offset by short-term capital loss) + Long-term capital gain = Adjusted gross income
$145,000 - $3,000 + $25,000 = $167,000

Using the corporate tax rate schedule for 2013, the tax liability can be calculated as follows: 
First $50,000 at 15% = $7,500
Next $25,000 at 25% = $6,250
Next $25,000 at 34% = $8,500
Remaining $67,000 at 39% = $26,130

Total tax liability = $48,380. However, since Sparrow had already made estimated tax payments throughout the year, we need to subtract the total estimated tax payments to arrive at the final tax liability. If the estimated tax payments were $2,730, Sparrow's final tax liability would be $45,650 (C).

During 2013,Sparrow Corporation,a Calendar Year C Corporation,had Operating Income of $425,000,operating