The current-year 2015 statutory tax rate is 30%. For each of the following cases, determine the 2015 year-to-date (YTD) tax benefit traceable to the YTD operating loss.
SOLUTION
| T ax rates Case A | 30% 2015 | 25% 2014 | 15% 2013 |
|---|---|---|---|
| YTD income (loss) Projected for the balance of the year Annual income (loss) | $ (80,000) 120,000 40,000 | $(30,000) | |
| Prior year net operating loss carryforward Taxable income | (30,000) $10,000 | $ (30,000) | |
| Annual entry: | DR (CR) | DR (CR) | |
| Taxes receivable (payable) Deferred tax asset (25% x $30 K) | (3,000) (7,500) | 7,500 | |
| Tax expense (benefit) | 10,500 | (7,500) | |
| Effective tax rate & YTD tax benefit: Annual expense (benefit) Annual income (loss) Effective rate YTD operating (loss) YTD tax (benefit) Case B | 10,500 40,000 26.25% (80,000) (21,000) 2015 | 2014 | 2013 |
| YTD income (loss) Projected for the balance of the year Annual income (loss) | $ (80,000) (80,000) | $20,000 | $10,000 |
| Loss carryback to prior 2 years Taxable income | 30,000 $ (50,000) | $20,000 | $10,000 |
| Annual entry: | DR (CR) | DR (CR) | DR (CR) |
| Taxes receivable (payable) Deferred tax asset | 6,500 | (5,000) | (1,500) |
| Tax expense (benefit) | (6,500) | 5,000 | 1,500 |
| Effective tax rate & YTD tax benefit: Annual expense (benefit) Annual income (loss) Effective rate | (6,500) (80,000) 8.13% | ||
| YTD operating (loss) YTD tax (benefit) | (80,000) (6,500) | ||
| Effective rate | 8.13% | ||
| YTD operating (loss) | |||
| YTD tax (benefit) | (80,000) |
(6,500)
Case C 2015 2014 2013
YTD income (loss) ........................................................ $50,000
Projected for the balance of the year ............................. (80,000)
Annual income (loss) .................................................... (30,000) $10,000 $ (20,000)
Prior year net operating loss carryforward ..................... (10,000)
Loss carryback to prior 2 years ......................................_________________________________
Taxable income .............................................................. $ (30,000) $ 0 $ (20,000)
Annual entry: DR (CR) DR (CR) DR (CR)
Taxes receivable (payable) ...........................................
Deferred tax asset (25% x $10 K) ................................. 2,500
Deferred tax asset (30% x $20 K) ................................. 3,500
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