Luther Industries Has Outstanding Tax Loss Carryforwards of $70 Million

question 71

Multiple Choice

Luther Industries has outstanding tax loss carryforwards of $70 million from losses over the past four years. If Luther earns $15 million per year in pretax income from now on, in how many years will Luther first pay taxes?

• A) 2 years
• B) 7 years
• C) 4 years
• D) 5 years

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Definitions:

Transfer Price

The price at which divisions of a company transact with each other, often used for the sale of goods or services within the company.

Variable Cost

Costs that vary directly with the level of production or sales, such as raw materials and direct labor.

Ample Capacity

A situation where a company has enough or more than enough capacity to meet its current production or operation needs.

Transfer Price

The price at which goods and services are sold between divisions within the same company or between controlled or related entities.