TLR Productions reported income before taxes of $175,000 for the years 2013,2014,and 2015.In 2016 they experienced a loss of $300,000.TLR had a tax rate of 25% in 2013 and 2014,and a rate of 35% is 2015 and 2016.Assuming the company uses the carryback provisions for the net operating loss,what amount should be reported as Income Tax Refund Receivable in 2016?

Question

Quizplus · Accepted Answer

- In 2013 and 2014, the income tax rate was 25%, so the income tax paid was $43,750 each year (25% x $175,000).
- In 2015 and 2016, the income tax rate was 35%, so the income tax paid was $61,250 each year (35% x $175,000).
- In 2016, there was a net operating loss of $300,000. Since TLR Productions can carryback the loss for two years, they can apply it to the income in 2014 and 2015. 
- In 2014, the income before taxes was $175,000, so the taxable income with the loss carryback would be $0, resulting in a tax refund of $43,750. 
- In 2015, the income before taxes was also $175,000, but with the loss carryback, the taxable income would be $125,000 ($175,000 - $300,000), resulting in a tax refund of $21,875 ($61,250 - $39,375).
- The total refund would be $65,625 ($43,750 + $21,875).
- Therefore, the correct answer is (C) $87,500, which is the total income tax refund receivable in 2016 after accounting for the loss carryback.

TLR Productions Reported Income Before Taxes of $175,000 for the Years