1. Company ABC reports a loss of $80,000 in 2007. In the past when the firm incurred a loss they first carried the loss back as far as they could to receive a refund from the IRS, and then carry forward the remainder to be used to offset future income. Assume the past seven-years of taxable income are as follows (and further that they are not using the current (new) tax law enacted in November 2017 to account for NOLs): Year Income 2000 $50,000 2001 $30,000 2002 ($40,000) 2003 ($80,000) 2004 $30,000 2005 $50,000 2006 $30,000 Further assume that the current tax rate is 40% and is expected to decrease to 35% in the next period and remain at that rate for the foreseeable future. Finally, ABC is only able provide evidence that they will be able to earn $40,000 in the foreseeable future. What is the amount of the Net Operating Loss (NOL) that ABC will carry forward into the future? What is the DTA that ABC will record related to this NOL? What (if any) journal entry would they be required to record based on only being able to provide evidence of $40,000 of future taxable income?
1.
Company ABC reports a loss of $80,000 in 2007. In the past when the firm incurred a loss they first carried the loss back as far as they could to receive a refund from the IRS, and then carry forward the remainder to be used to offset future income. Assume the past seven-years of taxable income are as follows (and further that they are not using the current (new) tax law enacted in November 2017 to account for NOLs):
Year Income
2000 $50,000
2001 $30,000
2002 ($40,000)
2003 ($80,000)
2004 $30,000
2005 $50,000
2006 $30,000
Further assume that the current tax rate is 40% and is expected to decrease to 35% in the next period and remain at that rate for the foreseeable future. Finally, ABC is only able provide evidence that they will be able to earn $40,000 in the foreseeable future.
What is the amount of the Net Operating Loss (NOL) that ABC will carry forward into the future?
What is the DTA that ABC will record related to this NOL?
What (if any)
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