Consider the following: Case A Income (loss) for quarters 1 through 4 is ($50,000), $30,000, $40,000, and $40,000, respectively

Future projected income for the year is uncertain at the end of quarters 1 and 2 . Annual income at the end of quarter 3 is estimated to be $20,000 . No carryback benefit exists, and any future annual benefit is uncertain.
Case B Assume the same facts as in Case A. However, at the end of quarters 1 through 3, annual income is estimated to be $40,000 .
Case C Quarterly income (loss) levels were $15,000, ($35,000), ($75,000), and $25,000 . A yearly operating loss of $70,000 was anticipated throughout the year. Prior years' income of $28,000 is available for carryback. The same tax rates were relevant to the carryback period

Required:

For cases A through C, complete the schedule that follows: Assume that the statutory tax rate is 15% on the first $50,000 of income, 25% on the next $25,000, and 30% on income in excess of $75,000 .

Income (Loss) Tax Tax Expense (Benefit)
Case Quarter Current Year to Date Rate Year to Date Current

1

2

3

4

Tax Expense

Income (Loss)
(Benefit)

Year Tax Year

Case Quarter Current to Date Rate to Date Current
A 1 $(50,000) $(50,000) 0 0 0

2 30,000 (20,000) 0 0 0

3 40,000 20,000 15% 3,000 3,000

4 40,000 60,000 16.7%a 10,000a 7,000

B 1 (50,000) (50,000) 15%b (7,500) (7,500)

2 30,000 (20,000) 15%b (3,000) 4,500

3 40,000 20,000 15%b 3,000 6,000

4 40,000 60,000 16.7%a 10,000a 7,000

C 1 15,000 15,000 6%c 900 900

2 (35,000) (20,000) 6% (1,200) (2,100)

3 (75,000) (95,000) d (4,200) (3,000)

4 25,000 (70,000) 6% (4,200) 0
a ($50,000 x 15%) + ($10,000 x 25%) = $10,000 / $60,000 = 16.7%

b The tax rate of first $50,000 of income is 15%

d Because the YTD loss of $95,000 is greater than the annual loss of $70,000, the YTD tax benefit must be based on the YTD loss.

e Carryback available = $28,000 x 15% = $4,200