Studios reported a net capital loss of $30,000 in Year 5. It reported net capital gains of $14,000 in Year 4 and $27,000 in Year 6. What is the amount and nature of the book-tax difference in Year 6 related to the net capital carryover?
A)$11,000 unfavorable.
B)$11,000 favorable.
C)$16,000 unfavorable.
D)$16,000 favorable.

Question

Quizplus · Accepted Answer

In Year 6, the studio can use the $30,000 net capital loss from Year 5 to offset the $27,000 net capital gain, resulting in a $3,000 loss carryover to future years. This creates a $16,000 favorable book-tax difference in Year 6 because, without the carryover, the taxable income would have been $27,000 higher.

Studios Reported a Net Capital Loss of $30,000 in Year