In the First Two Years of Operations, a Company Reports

question 35

Essay

In the first two years of operations, a company reports taxable income of $115,000 and $165,000, respectively. In the first two years, the tax rates were 38% and 32% respectively. It is now the end of the third year, and the company has a loss of $160,000 for tax purposes. The company carries losses to the earliest year possible. The tax rate is currently 25%.
Required:
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:

Cholecystokinin

A hormone secreted by cells in the duodenum that stimulates the digestion of fat and protein.

Fatty Acids

Long hydrocarbon chains with a carboxylic acid group at one end, essential components of lipids and important sources of energy.

Duodenum

The first section of the small intestine immediately beyond the stomach, where most chemical digestion takes place.

Gastric Secretion

The process by which the stomach releases substances like hydrochloric acid, enzymes, and mucus, which aid in food digestion.