ABC Company reported an operating loss of $132,000 for financial reporting and tax purposes in 2009. The enacted tax rate is 40% for 2009 and all future years. Assume that ABC elects a loss carry-back. No valuation allowance is needed for any deferred tax assets. Taxable income, tax rates, and income taxes paid in ABC's first four years of operations were as follows:
SOLUTIONS TO PROBLEMS MUST BE SUPPORTED BY COMPUTATIONS TO RECEIVE CREDIT, NO EXCEPTIONS.
Taxable Income Tax Rates Taxes Paid
2005 $30,000 30% $9,000
2006 $35,000 30% $10,500
2007 $42,000 35% $14,700
2008 $40,000 40% $16,000
Required:
1. What is the tax liability for each year?
2. What amount of tax refund is generated by the NOL?
2. In what year does a deferred tax asset arise and what is the related NOL.
3. What year is the deferred tax asset used, and how much?