Katt CoBegan Operations Two Years Ago (Year 1) and Recognized $37,000

question 2

Multiple Choice

Katt Co.began operations two years ago (Year 1) and recognized $37,000 in business income and $1,000 in taxable capital gains that year.Last year (Year 2) the company incurred a business loss of $25,000, a taxable capital gain of $2,000, and an allowable capital loss of $5,000.During the current year (Year 3) business income was $50,000, taxable capital gains were $4,000, and the company received $10,000 in dividends from a taxable Canadian corporation.Katt Co.utilizes any unused losses in the earliest years possible, Which of the following taxable incomes are correct after all carry-over adjustments have been made?

• A)Year 1: $12,000; Year 2: $0; Year 3: $52,000
• B)Year 1: $38,000; Year 2: ($28,000); Year 3: $64,000
• C)Year 1: $13,000; Year 2: $0; Year 3: $61,000
• D)Year 1: $37,000; Year 2: $0; Year 3: $27,000

---

Definitions:

Depletion Expense

An accounting approach for allocating the cost of extracting natural resources from the earth over the period of their extraction.

Real Estate

Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature.

Salvaged Materials

Materials that have been recovered or repurposed from obsolete or discarded sources, often used in manufacturing or construction.

Architect's Fee

The compensation a client pays to an architect for their professional services in designing buildings or structures.