Question

Given the following for the QRS Company: Assume QRS elects the carryback provision in 2017 and that future income is "more likely than not." 12/31/18 Income Tax Payable is:

Answer 1

Complete Question:

Given the following for the QRS Company:

Year        Pre-Tax Net            Tax Rate

               Income (Loss)

2015          $10,000                  20%

2016             8,000                   20%

2017          (20,000)                  20%

2018           12,000                   20%

Assume QRS elects the carryback provision in 2017 and that future income is "more likely than not." 12/31/18 Income Tax Payable is:

Select One:

a. $2,400

b. $2,000

c. $11,600

d. $9,600

e. $400

Answer:

QRS

12/31/18 Income Tax Payable is:

b. $2,000

Explanation:

a) Data:

QRS Company:

Year        Pre-Tax Net            Tax Rate

               Income (Loss)

2015          $10,000                  20%

2016             8,000                   20%

2017          (20,000)                  20%

2018           12,000                   20%

b) QRS can recover the loss from the 2015 and 2016 net income in the sum of $18,000 ($10,000 + $8,000) and then carry forward $2,000 against 2018 net income.  Therefore, the taxable income for 2018 will be $10,000 ($12,000 - $2,000).  The income tax payable is $2,000 ($10,000 * 20%).