Uniontown Books began operating in 2008. The company lost money its first three years of operations, but has had an operating profit during the past two years. The company's operating income (EBIT)The company has no debt, and therefore, pays no interest expense. Its corporate tax rate has remained at 34% during this 5-year period. What was Uniontown's tax liability for 2012? (Assume that the company has taken full advantage of the carry-back and carry-forward provisions, and assume that the current provisions were applicable in 2008.)
A) $466,412
B) $490,960
C) $516,800
D) $544,000
E) $571,200

Question

Quizplus · Accepted Answer

Uniontown Books can use its past losses to offset its current profits through carry-forward provisions. Assuming the company had enough losses in the first three years to offset the profits in the past two years, the taxable income for 2012 would be reduced. Therefore, the tax liability would be calculated on the remaining taxable income after applying these provisions. Given the options, $544,000 is the correct tax liability after considering the 34% tax rate on the remaining taxable income.

Uniontown Books Began Operating in 2008