NOL Carryback and Carry forward
The financial history below shows the income and losses for Steele and Associates for the 10 year period 1999–2008. Assume that no adjustments to taxable income are necessary for purposes of the NOL carryback and that the company elects to use the carryback provisions of the tax code.
|
|
Taxable and Pretax |
|
|
|
|
Financial Income |
|
|
|
Year |
(before NOL) |
Income Tax Rate |
Income Tax Paid |
|
1999 |
$ 8,800 |
50% |
$ 4,400 |
|
2000 |
12,300 |
50 |
6,150 |
|
2001 |
14,800 |
44 |
6,512 |
|
2002 |
(24,250) |
44 |
0 |
|
2003 |
7,200 |
44 |
3,168 |
|
2004 |
(21,750) |
46 |
0 |
|
2005 |
16,600 |
46 |
? |
|
2006 |
32,000 |
40 |
12,800 |
|
2007 |
(58,700) |
40 |
0 |
|
2008 |
65,000 |
40 |
? |
Instructions:
1. Given the foregoing information, compute the amount of income tax refund for each year as a result of each NOL carryback and the amount of the carry forward (if any).
2. How would the NOL carry forward as of December 31, 2007, be reflected in the 2007 financial statements?
3. Calculate the amount of income tax paid, showing the benefit of the NOL carry forward, for the years 2005 and 2008.
4. For 2008, give the entry (or entries) to record income taxes, assuming that the deferred tax asset stemming from the 2007 NOL carry forward was fully recognized in 2007.