Managerial Accounts

Chapter 2

(2-13)

Loss Caryrback and Canliforward

Financial Statements, Cash Flow, and Taxes

Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

2013

87

2012

Sales

Operating costs excluding depreciation

Depreciation and amortization

Earnings before interest and taxes

Less interest

Pre-ta:i income

Taxes (40%)

Net income availabie to common stockhoiders

Common dividends

$ I i,000

9,360

J6(.t

$ 1,260 0a

$ i,i40 456

$_684 $ zza

s 10,000

8,500

360

$ 1,140

100

$ 1,040 416

$ az+ $ zoo

Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)

2013 2012 A-s.sefs

Cash

Short-term investments

Accounts receivable

Inventories

Total current assets

Net plant and equipment

Total assets

Liabilities and Equity

Accounts payable

Accruals

Notes payable 'l'otal current liabilities

Long-term debt

Total Iiabilities

Common stock

Retained earnings

Total common equity

Total liabilities and equity

$ s50 il0

2,750

1,650

$5,060

3,850

$8,elq

$1,100

550

384

$2,A34

1,100

$3,134

4,312

t,464

$s,776

$sels

$ s00 100

2,50A

1,500

$4,600

3,500

$8,100

$1,000

500

200

$1,700

1,000

$2,700

4,400

1,000

$5,400

$ergs

The Boo}binder 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 2013 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time it files its 2013 income tax return, and it will receive a check from the U.S. Treasury. Show how it calculates this credit, and then indicate the flrm's tax liability for each of the next 5 years. Assume a 4OVo tax rate on all income to ease the calculations.