Question

Peachtree Corp. is a merchandiser in its fourth year of operations. Peachtree had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Peachtree incurred a $400,000 net operating loss for tax purposes. The NOL carryforward is _____.

A. $400,000
B. $480,000
C. $320,000
D. $300,000

Answer 1

The NOL carryforward for Peachtree Corp. in year 4 is $300,000, calculated as the remaining net operating loss of $400,000 minus the sum of taxable incomes from the first three years, which is $100,000. D. $300,000

Step-by-step explanation:

The subject of the question is regarding the Net Operating Loss (NOL) carryforward for Peachtree Corp. In the scenario provided, Peachtree had taxable incomes of $20,000 in year 1, $30,000 in year 2, $50,000 in year 3, and a net operating loss of $400,000 in year 4. To calculate the NOL carryforward, we must first sum the taxable incomes for the first three years: $20,000 + $30,000 + $50,000 equals $100,000. This $100,000 is the amount of income that can offset the $400,000 net operating loss from year 4.

After using up $100,000 against past profits, the remaining carryforward amount is $400,000 minus $100,000, resulting in a NOL carryforward of $300,000 (Option D).