Question

1) Explain the concept of Net Operating Loss carryback and carryforwards. (Do not copy from the internet or textbook, explain in your own words.)     (5pts)

Calculate the total annual tax refund to be received by Seasons Pizza Inc. as a result of the net operating loss in 2018.      (5pts)

    

                                               2015                2016                    2017            2018

Total Revenues                 1,200,000     $1,000,000          $1,500,000      $800,000

Operating Expenses              853,500          700,000               990,000     2,000,000

NOP                                      346,500          300,000               510,000   <1,200,000>

Tax (34%)                             117,810          102,000               173,400            0

NI /NL                                   228,690          198,000              336,600    <1,200,000>  

2) Based on the Tax Cuts and Jobs Act (2018) calculate the total tax liability for Café Gelatto, an LLC, if they earned a taxable income of $325,000 in 2018.    (Hint: use the example provided in the powerpoint slides under Income Taxes, show the tax liability at each tax bracket).   (10pts)

3) a) Explain the differences between Economics, Accounting and Finance.   (5pts)

     b) Explain the differences between corporate finance, personal finance and governmental (or

          public) finance.   (5pts)

4) If you were to start a business tomorrow, give 2 reasons each why you would organize your business as:      (10pts)

     a) sole proprietor

     b) LLC

     c) S Corporation

5) How is a B-Corp different from a C-Corp? Explain the “triple bottom-line” that B-Corps must meet (as we discussed in class).     (5pts)

6) Why do governments impose income taxes? Explain.    (10pts)

7) Explain the difference between the capital gains tax and ordinary income tax.   (5pts)

Answer 1

Answer(3)(a): Differences between Economics, Accounting and Finance: Are as following:

1. Economics is a science that studies the human behavior of choosing the best alternative among the available alternatives, relationship between money and resources in the society. We study; marginal utility, micro and macro economics, growth theory, monetary and fiscal policy etc.
2. Accounting is the process of recording and analyzing the financial transactions into the books of accounts so that financial statements can be made without any error. We study; journal entries, making financial statements, reconciliation, rectification of errors etc.
3. Financial is very wide subject that studies management of finance. It includes planning, organizing, evaluating and controlling the financial items. We study; Capital budgeting, time value of money, financial management, cash flow, analysis of financial statements etc.

Answer(b): Differences between corporate finance, personal finance and governmental finance: Are as following:

1. Corporate finance deals with finance and investment decisions of a company.
2. Personal finance deals with financial planning and tax saving of the individuals.
3. Governmental finance deals with allocation of resources, distribution of income and stabilizing the economy of the country.

Answer(4):

a) Sole proprietor- Where only one business owner is there.

1. It is easier to set up and wind up.
2. Owner receives all the income of business.

b) LLC- Limited liability company

1. Liability is limited to the capital invested
2. Owners are not personally liable for any debt of the company.

c) S Corporation- It is a corporation that provides special tax benefits.

1. Limited liability for management people and shareholders.
2. Distributed profits are taxed at the personal level of shareholders.

Answer(6) Government imposes income tax so that it can get revenue, we pay income tax, it is income for government. Government pays its debt and obligation out of the income that it receives from taxes, It provides us many services, goods, subsidy and benefits only from the income that it get from income tax.

Answer(7): Difference between the capital gains tax and ordinary income tax: Points are as following:

S.no.	Capital Gain tax	Ordinary Income tax
1	This tax is levied on the income from sale of capital asset. Capital assets are shares and property.	This tax is imposed on incomes, earned from salary, interest, dividend, employment, royalties etc.
2	Capital gain tax is of two type; sort term and long term.	Income tax is variable and it is only one type, for income tax purpose, income from all the sources should be declared.
3	Tax rate of capital gains varies on the basis of short term and long term capital gains, after a certain limit, there is capital gain tax.	It depends upon the income slabs of the individuals and also the individual is unmarried or married, filing jointly.
4	Short term capital gain(before one year) is taxed at high rate while long term capital gain(more than a year) is taxed at lower rate.	Lower income group will have to pay low tax and higher income group will have to pay high tax.