Question

Khan, Inc. reports a taxable and financial loss of $2,250,000 for 2019. Its pretax financial income for the last two years was as follows: 2017 - $900,000 2018 - 1,200,000 The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2019, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is __________.a. $1,950,000 loss.b. $ -0.c. $585,000 loss.d. $1,365,000 loss.

Answer 1

None of the options is correct, the answer is:

• a $1,575,000 loss

Step-by-step explanation:

A carryover happens when a company chooses to carry a loss forward, while a carryback happens when the company chooses to reduced previous taxes with the current loss.

The amount that Khan can report as net loss during 2019 = 2019 loss - (2019 loss x tax rate) = $2,250,000 - ($2,250,000 x 30%) = $2,250,000 - $675,000 = $1,575,000 loss

The 2019 loss will help Khan reduce the taxes due from prior periods.