Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that cannot be deducted on its income tax return but must be carried forward to 20X4. Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3.

Question

Quizplus · Accepted Answer

Net capital losses are deducted in the computation of earnings and profits for the year in which they are incurred, even if they cannot be deducted for income tax purposes. Thus, Cedar Corporation will deduct the net capital loss of $20,000 in the computation of its current earnings and profits for 20X3.

Cedar Corporation Incurs a Net Capital Loss of $20,000 in 20X3