Baker Corporation Suffers a Net Operating Loss (NOL)of $65,000 in 2013.Baker

question 108

Multiple Choice

Baker Corporation suffers a net operating loss (NOL) of $65,000 in 2013.Baker was incorporated in 2011.Baker had a NOL of $20,000 in 2011 and taxable income of $35,000 in 2012.The corporation expects a taxable income of $200,000 in 2014.What valid alternatives are available to Baker concerning the $50,000 loss?
I.Baker can carryback the loss to 2014 and will receive a refund of $2,250.
II.Baker can elect to carryforward the loss and expect to receive tax savings of $19,500.

• 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:

Variable Factory Overhead

Costs of production that fluctuate with the level of output, such as utility expenses and materials used in the manufacturing process, excluding direct labor and materials costs.

Fixed Factory Overhead

Costs associated with manufacturing that do not change with the level of production, such as salaries of supervisors and rent of the facility.

Sales Forecast

A sales forecast is the projection of the amount of revenue a company will generate through sales activities over a specific period.

Cash Receipts

Represents the money received by a business during a specific period, including revenues from sales, services, and loans.