In the First Two Years of Operations,a Company Reports Taxable

question 71

Essay

In the first two years of operations,a company reports taxable income of $125,000 and $65,000,respectively.In the first two years,the tax rates were 44% and 48% respectively.It is now the end of the third year,and the company has a loss of $260,000 for tax purposes.The company carries losses to the earliest year possible.The tax rate is currently 25%.
Requirement:
a.How much tax was paid in year 1 and year 2?
b.Compute the amount of income tax payable or receivable in the current (third)year.

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Definitions:

Price Leadership

A market strategy where a leading firm sets prices that other firms in the market follow.

Price Cuts

A reduction in the selling price of goods or services, usually to stimulate demand or compete more effectively.

Price War

Successive, competitive, and continued decreases in the prices charged by firms in an oligopolistic industry. At each stage of the price war, one firm lowers its price below its rivals’ price, hoping to increase its sales and revenues at its rivals’ expense. The war ends when the price decreases cease.

OPEC

The Organization of the Petroleum Exporting Countries, a group of oil-producing nations that coordinates policies to control the supply and influence the price of oil on the global market.