Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that cannot be deducted on its income tax return but must be carried forward to 20X4. However, Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3.

Question

Quizplus · Accepted Answer

Even though the net capital loss cannot be deducted on the income tax return for 20X3, it can still be used to reduce current earnings and profits. This means that Cedar Corporation can use the loss to reduce its taxable income in future years, while still reflecting the loss in its financial statements for the current year.

Cedar Corporation Incurs a Net Capital Loss of $20,000 in 20X3