Uniontown Books began operating in 2007. 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 2011? (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 2007.)
A) $466,412
B) $490,960
C) $516,800
D) $544,000
E) $571,200

Question

Quizplus · Accepted Answer

Uniontown Books can use its previous losses to offset its taxable income in 2011 due to carry-forward provisions. Assuming the company had enough losses to offset all taxable income, the tax liability would be calculated on the remaining taxable income after applying the carry-forward. The correct tax liability is $544,000, which corresponds to the taxable income after considering the carry-forward provisions.

Uniontown Books Began Operating in 2007