Saucy Inc. reported a taxable and accounting loss of $ 130,000 for 2020. Its pre-tax accounting income for the last two years was as follows: $$\begin{array} { r r }
2018 & \$ 60,000 \
2019 & 80,000
\end{array}$$ The amount that Saucy reports as a net loss for financial reporting purposes in 2020, assuming that it uses the carryback provisions, and that the tax rate is 25% for all years involved, is

Question

Saucy Inc. reported a taxable and accounting loss of $ 130,000 for 2020. Its pre-tax accounting income for the last two years was as follows: $$\begin{array} { r r } 
2018 & \$ 60,000 \
2019 & 80,000
\end{array}$$ The amount that Saucy reports as a net loss for financial reporting purposes in 2020, assuming that it uses the carryback provisions, and that the tax rate is 25% for all years involved, is

Quizplus · Accepted Answer

Saucy Inc. can carry back the $130,000 loss to offset the taxable income of $60,000 in 2018 and $80,000 in 2019. This results in a total offset of $140,000, but since the loss is only $130,000, the entire loss is used. The tax benefit from this loss is $130,000 * 25% = $32,500. Therefore, the net loss for financial reporting purposes is $130,000 - $32,500 = $97,500.

Saucy Inc Reported a Taxable and Accounting Loss of $ 130,000