Question

Before considering a net operating loss carryforward of $74 million, Fama Corporation reported $210 million of pretax accounting and taxable income in the current year. The income tax rate for all previous years was 38%. On January 1 of the current year, a new tax law was enacted, reducing the rate to 27% effective immediately. Fama's income tax payable for the current year would be: (Round your answer to the nearest whole million.)

$108 million.
$37 million.
$39 million.

Answer 1

correct option is $37 million

Step-by-step explanation:

given data

net operating loss = $74 million

pretax accounting and taxable income = $210 million

income tax rate = 38%

reducing the rate = 27%

to find out

Fama's income tax payable for the current

solution

we know here net taxable income that is express as

net taxable income = pretax accounting and taxable income - net operating loss ...................1

put here value we get

net taxable income = 210000 - 74000

net taxable income = $136000

and tax is here = 27 % of $136000

tax = 0.27 × $136000

tax = $36720 = 37000

So correct option is $37 million