Question

Thunder Inc. had a pretax operating loss of $125,000 in its first year of operations for both financial and income tax purposes. In Year 2, it expects to make a profit of $50,000. The tax rate is 30%. What is the amount of the deferred tax asset from the loss carryforward?

Answer 1

In this case, the amount of the deferred tax asset from the loss carryforward is $37,500.

Step-by-step explanation:

To calculate the deferred tax asset from the loss carryforward, we need to determine the tax benefit of the loss and apply the tax rate.

In the first year, Thunder Inc. had a pretax operating loss of $125,000. Since the loss can be carried forward, it will provide a tax benefit in Year 2 when the company expects to make a profit of $50,000.

To calculate the tax benefit of the loss carryforward, we multiply the loss by the tax rate. In this case, the tax rate is 30%.

• Tax benefit = Pretax operating loss * Tax rate
• Tax benefit = $125,000 * 0.30
• Tax benefit = $37,500

Therefore, the amount of the deferred tax asset from the loss carryforward is $37,500.