In 20X0,Coffee Co.recognized $37,000 in business income and $1,000 in taxable capital gains.In 20X1,the company incurred a business loss of $25,000,a taxable capital gain of $2,000,and an allowable capital loss of $5,000.Business income for 20X2 was $50,000,taxable capital gains were $4,000,and the company received $10,000 in dividends from a taxable Canadian corporation.Assuming Coffee Co.utilizes any unused losses in the earliest years possible,which of the following taxable incomes are correct,after all carry-over adjustments have been made?
A) 20X0: $12,000; 20X1: $0; 20X2: $52,000
B) 20X0: $38,000; 20X1: ($28,000); 20X2: $64,000
C) 20X0: $13,000; 20X1: ($2,000); 20X2: $62,000
D) 20X0: $37,000; 20X1: $0; 20X2: $27,000

Question

Quizplus · Accepted Answer

In 20X0, the total income is $37,000 + $1,000 = $38,000. In 20X1, the business loss of $25,000 can be carried back to 20X0, reducing the taxable income to $13,000. The allowable capital loss of $5,000 can offset the $1,000 taxable capital gain from 20X0, leaving $4,000 to carry forward. In 20X2, the business income is $50,000, taxable capital gains are $4,000, and dividends are $10,000. The $4,000 capital loss carried forward offsets the $4,000 capital gain, leaving $50,000 + $10,000 = $60,000 as taxable income.