Question

Carla Vista Co. reports a taxable and pretax financial loss of $850000 for 2018. Carla Vista's taxable and pretax financial income and tax rates for the last two years were: 2016 $850000 30% 2017 $850000 35% The amount that Carla Vista should report as an income tax refund receivable in 2018, assuming that it uses the carryback provisions and that the tax rate is 40% in 2018, is
$297500.
$340000.
$255000.
$382500.

Answer 1

Answer:

$255,000

Explanation:

Given that,

2016:

Taxable and pretax financial income = $850,000

Tax rate = 30%

2017:

Taxable and pretax financial income = $850,000

Tax rate = 35%

Income tax refund receivable in 2018:

= Taxable and pretax financial loss in 2018 × Tax rate in the year 2016

= $850,000 × 30 percent

= $255,000

Note:

(i) The carry back provision allows losses to be carried back to preceding 2 years, with the amount of net loss being applied to earliest year first.

(ii) 2018 net loss should be applied to income of 2016 first.