Question

In: Accounting

Zeno Inc. sold two capital assets in 2020. The first sale resulted in a $53,000 capital...

Zeno Inc. sold two capital assets in 2020. The first sale resulted in a $53,000 capital loss, and the second sale resulted in a $25,600 capital gain. Zeno was incorporated in 2016, and its tax records provide the following information:

2016 2017 2018 2019

Ordinary income $443,000 $509,700 $810,300 $921,000

Net capital gain 22,000 0 4,120 13,600

Taxable income $465,000 $509,700 $814,420 $934,600

Required: Compute Zeno’s tax refund from the carryback of its 2020 nondeductible capital loss. Assume Zeno’s marginal tax rate was 34 percent in 2016 and 2017, and 21 percent in 2018 and 2019.

Expert Solution

Zeno has a $27,400 nondeductible net capital loss in 2018. It can carry the loss back three years to deduct against net capital gain in those years. Zeno can deduct $4,120 capital loss carryback against 2016 capital gain and $13,600 capital loss carryback against 2017 capital gain to generate a $6,025 tax refund ($17,720 × 34%)

Zeno's capital loss carryforward is $9,680 ($27,400 - $17,720).

(The capital loss carry back for preceding 3 pevious year and carry over 5 succeding year

Carry back of losses will be from 2015-2017

Capital gain $25600

Capital loss $53000

Net capital loss (27400)

	2016	2017	2018	total losses carry back
Net capital gain	0	4120	13600
Carry back capital losses		4120	13600	17720

a) Computation of Zeno tax refund as 34%

34% tax refund of $ 17,720

= 6024.8

Rouded off = 6025

b)Computation zeno’s capital loss carryforward into 2020.

=(53000 - 25600) - 17720

Capital loss carry forward = 27400 - 17720

= $9,680)

ekkarill92 answered 2 years ago

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