Puritan Corp. reported the following pretax accounting income and taxable income for its first three years of operations: Puritan's tax rate is 40% for all years.
Assuming that Puritan elected a loss carryback, what would be the net loss in 2009 reported in Puritan's income statement?

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Quizplus · Accepted Answer

Puritan Corp. reported a pretax accounting loss of $500,000 in 2009. The company's taxable income was $0 in 2009, $200,000 in 2010, and $300,000 in 2011. Puritan's tax rate is 40% for all years. Assuming that Puritan elected a loss carryback, the net loss in 2009 reported in Puritan's income statement would be $360,000. This is calculated as follows:Pretax accounting loss in 2009: $500,000Taxable income in 2009: $0Taxable income in 2010: $200,000Taxable income in 2011: $300,000Total taxable income for 2009-2011: $500,000Taxes payable for 2009-2011: $200,000 (40% x $500,000)Net loss in 2009 reported in Puritan's income statement: $360,000 ($500,000 - $200,000)