A company's financial statements two years ago showed a net income after taxes of $1,235,000 and a year ago, $877,500. This year the company reported a loss of $1,550,000. If the Company's tax rate has remained unchanged at 35% for these years, what refund will it be eligible to receive?

Question

Quizplus · Accepted Answer

The company can carry back the loss to offset taxable income from the previous two years. The total taxable income for the two years is $1,235,000 + $877,500 = $2,112,500. The loss of $1,550,000 can be applied against this, leaving taxable income of $562,500. The tax paid on this would have been 35%, so the refund is 35% of $1,550,000 = $542,500.

A Company's Financial Statements Two Years Ago Showed a Net