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    Loss Carry-back, Carry-forward for Hermann Company

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    3-9 Loss, Carry-back, Carry-forward

    The Herrman Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2005 the firm incurred a loss of $650,000. The firm will claim tax a credit at the Treasury. Show how it calculates this credit, and then indicate the firm's tax liability for each of the next 5 years. Assume a 40 percent tax rate on all income to ease the calculations.

    Future taxes = $0; $0; $40,000; $60,000; $60,000

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    Solution Preview

    Attached Excel shows the calculations in a more readable format.

    Hermann Company
    Calculation of loss carrybacks
    Form 1120
    2,003 2,004 2,005 2,006 2,007 2,008 2,009 2,010

    Taxable ...

    Solution Summary

    Problem 3.9 requests a schedule for the carryback and carryforward of net operating losses for Hermann Company. The solution involves 8 different years to fully absorb the losses, and shows the calculations including refunds. The answers were given in the problem, but not the calculations.