Question

The Bookbinder Company has made $300,000 before taxes during each of the last 15 years, and it expects to make $300,000 a year before taxes in the future. However, in 2016 the firm incurred a loss of $750,000. The firm will claim a tax credit at the time it files its 2016 income tax return, and it will receive a check from the U.S. Treasury. Show how it calculates this credit, and then indicate the firm's tax liability for each of the next 5 years. Assume a 35% tax rate on all income to ease the calculations. Enter your answers as positive values. If an amount is zero, enter "0".

1. Prior Years	2014	2015
   Profit earned	$	$
   Carry-back credit	$	$
   Adjusted profit	$	$
   Tax previously paid (35%)	$	$
   Tax refund: Taxes previously paid	$	$

   
   Total check from U.S. Treasury $  
   
2. Firm's tax liability
   2017:    $  
   2018:    $  
   2019:    $  
   2020:    $  
   2021:    $  

Answer 1

Answer a.

Prior Years	2014	2015
Profit earned	$300000	$300000
Carry-back credit	$0	$0
Adjusted profit	$300000	$300000
Tax previously paid (35%)	$105000	$105000
Tax refund: Taxes previously paid	$0	$0

Answer b.

Tax credit on loss will be 750000 * 35% = 262500 which will be deducted from the next years tax liability-

2017 - 300000 * 35% = 105000 - 105000 = 0

2018 - 300000 * 35% = 105000 - 105000 = 0

2019 - 300000 * 35% = 105000 - 52500 = 52500

2020 - 300000 * 35% = 105000

2021 - 300000 * 35% = 105000