In the current year, 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 current year income tax liability before any tax credits?

Question

Quizplus · Accepted Answer

Apricot Corporation's taxable income before any capital losses is $120,000. The capital loss carryforward of $15,000 will reduce the taxable income to $105,000 ($120,000 - $15,000). The income tax liability can be calculated using the corporate tax rate schedule:
- The first $50,000 of taxable income is taxed at 15%, so the tax liability on the first $50,000 is $7,500.
- The next $50,000 ($50,001 to $100,000) of taxable income is taxed at 25%, so the tax liability on the next $55,000 is $13,750.
- The final $5,000 ($100,001 to $105,000) of taxable income is taxed at 34%, so the tax liability on the final $5,000 is $1,700.
Thus, the total income tax liability before any tax credits is $22,950 ($7,500 + $13,750 + $1,700). The closest answer choice is C ($23,100), which is the correct answer.

In the Current Year, Apricot Corporation Had Taxable Income of $120,000