Billingsworth Corporation has the following net capital gains and losses for 2014 through 2017.Billingsworth' marginal tax rate is 34% for all years.

In 2017,Billingsworth Corporation earned net operating income of $30,000.What is/are the tax effect(s)of the $9,000 net capital loss in 2017?
I.Corporate taxable income is $21,000.
II.The net capital loss will provide income tax refunds totaling $3,060.

Question

Billingsworth Corporation has the following net capital gains and losses for 2014 through 2017.Billingsworth' marginal tax rate is 34% for all years.
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In 2017,Billingsworth Corporation earned net operating income of $30,000.What is/are the tax effect(s)of the $9,000 net capital loss in 2017?
I.Corporate taxable income is $21,000.
II.The net capital loss will provide income tax refunds totaling $3,060.
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Quizplus · Accepted Answer

The net capital loss can be used to offset other capital gains and can also be used to offset up to $3,000 of ordinary income. In this case, there are no capital gains to offset, but the $9,000 loss can still be used to offset $3,000 of the $30,000 net operating income, resulting in a taxable income of $27,000. The tax savings from this would be $1,020 (34% of $3,000). The remaining $6,000 of the net capital loss can be carried forward to future years. Therefore, statement II is correct, and statement I is incorrect because the taxable income would be $27,000 after the deduction of the net capital loss.

Billingsworth Corporation Has the Following Net Capital Gains and Losses