Billingsworth Corporation Has the Following Net Capital Gains and Losses

question 121

Multiple Choice

Billingsworth Corporation has the following net capital gains and losses for 2009 through 2012.Billingsworth' marginal tax rate is 34% for all years.
$$\begin{array} { l l l l } \frac { 2009 } { \$ 8,000 } & \frac { 2010 } { \$ 3,000 } & \frac { 2011 } { \$ 6,500 } & \$ \frac { 2012 } { \$ ( 9,000 ) }\end{array}$$
In 2013,Billingsworth Corporation earned net operating income of $30,000.What is/are the tax effect(s) of the $9,000 net capital loss in 2012?
I.Corporate taxable income is $21,000.
II.The net capital loss will provide income tax refunds totaling $3,060.

• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Average Tax Rate

The ratio of the total taxes paid to the overall income, found by dividing the aggregate amount paid in taxes by the total income.

Income Tax Schedule

A chart or formula used to determine the tax rate applied to various levels of income.

Progressive

Describes a taxation system where the tax rate increases as the taxable amount increases, aiming to distribute the tax burden more equitably.

Regressive

A term often used to describe taxes where the tax rate decreases as the taxable amount increases.