In 2018,Uniontown Books had EBIT equal to -$1,200,000.In 2019,its EBIT was $1,800,000. The company has no debt,and therefore,pays no interest expense.Its corporate tax rate is 25%.What was Uniontown's tax liability for 2019? (Assume that the company takes full advantage of the carry-forward provision.

Question

Quizplus · Accepted Answer

Uniontown Books can carry forward the 2018 loss of $1,200,000 to offset its 2019 EBIT of $1,800,000. This results in a taxable income of $600,000 ($1,800,000 - $1,200,000). The tax liability is 25% of $600,000, which equals $150,000.

In 2018,Uniontown Books Had EBIT Equal to -$1,200,000