Billingsworth Corporation has the following net capital gains and losses for 2009 through 2012.Billingsworth' marginal tax rate is 34% for all years.

$\begin{array}{llll}
\underline { 2009 } & \underline{ 2010 }& \underline{ 2011 }& \underline{ 2012 }\
\$ 8,000 & \$ 3,000 & \$ 6,500 & \$(9,000)
\end{array}$
In 2013,Billingsworth Corporation earned net operating income of $30,000.What is/are the tax effect(s)of the $9,000 net capital loss in 2012?
I.Corporate taxable income is $21,000.
II.The net capital loss will provide income tax refunds totaling $3,060.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Billingsworth Corporation has the following net capital gains and losses for 2009 through 2012.Billingsworth' marginal tax rate is 34% for all years.

$\begin{array}{llll}
 \underline { 2009 } &  \underline{ 2010 }&  \underline{ 2011 }&  \underline{ 2012 }\
\$ 8,000 & \$ 3,000 & \$ 6,500 & \$(9,000)
\end{array}$
In 2013,Billingsworth Corporation earned net operating income of $30,000.What is/are the tax effect(s)of the $9,000 net capital loss in 2012?
I.Corporate taxable income is $21,000.
II.The net capital loss will provide income tax refunds totaling $3,060.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

The net capital loss of $9,000 in 2012 can be carried back to offset the net capital gains from 2009, 2010, and 2011, resulting in a tax refund. The refund is calculated as $9,000 x 34% = $3,060. The loss does not affect the 2013 operating income directly, so statement I is incorrect.

Billingsworth Corporation Has the Following Net Capital Gains and Losses