In the First Year of Operations,a Company Reports Taxable Income

question 67

Essay

In the first year of operations,a company reports taxable income of $125,000 and paid $31,250 of income taxes.It is now the end of the second year,and the company has a loss of $175,000 for tax purposes.The company's management believes it is probable the company will be able to use up its tax losses.The tax rate is currently 40%.
Requirement:
Compute the amounts of income tax receivable and/ or deferred income tax asset in the current (second)year.

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Definitions:

Activity-Based Costing

A method of cost accounting that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.

Overhead Cost Per Unit

The allocation of total overhead costs to individual units of production, providing a per-unit cost of overhead expenses.

Expected Activity

An estimate of the volume of production or service levels a company anticipates, used for budgeting and planning.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities and products based on their usage of resources.