SOLVED

16.4Â Â Learning Objective 4 1) Which statement is correct? A) The income tax system treats income and losses symmetrically. B) The income tax system treats income and losses asymmetrically. C) When a company has a loss, a refund is received equal to the loss multiplied by the tax rate. D) A loss carryforward has immediate cash flow benefits to a company. 2) Explain why a company should carry back losses and why a company might choose to carry losses forward instead. 3) Which statement is true? A) A company should carry forward losses when they have had prior years’ taxable income . B) A company might carry their tax losses forward if they have exhausted the ability to carry losses backward. C) Carrying forward tax losses results in immediate cash flow to the company. D) Canadian tax laws allow corporations to carry an operating loss backward for 3 years and forward indefinitely, and capital losses backward for 3 years and forward indefinitely. 4) In the first two years of operations, a company reports taxable income of $200,000 and $250,000, respectively. In these two years, the company paid $45,000 and $56,000, respectively, in income taxes. It is now the end of the third year, and the company has a loss of $420,000 for tax purposes. The company carries losses to the earliest year possible. The tax rate is currently 25%. Â Compute the amount of income tax payable or receivable in the current (third) year. 5) A company had taxable income of $12 million in fiscal 2016 and paid taxes of 4.8 million; the company incurred a loss of $7 million in fiscal 2017 when the tax rate is 50%. How much refund is the company entitled to? A) Nil B) $2.8 million C) $3.5 million D) $4.8 million 6) A company had taxable income of $2 million in fiscal 2016 and paid taxes of 0.4 million; the company incurred a loss of $0.5 million in fiscal 2018 when the tax rate is 30%. How much refund is the company entitled to? A) $0.2 million B) $0.1 million C) $0.4 million D) $0.6 million 7) A company had taxable income of $2 million in fiscal 2017 and paid taxes of .7 million; the company incurred a loss of $8 million in fiscal 2018 when the tax rate is 50%. How much refund is the company entitled to? A) Nil B) $0.7 million C) $3.85 million D) $4 million