Assume that in year 1 Hill Corporation reported a net operating loss of $14,700
ID: 2501692 • Letter: A
Question
Assume that in year 1 Hill Corporation reported a net operating loss of $14,700 that it carried forward to year 2. In year 1, Hill also reported a net capital loss of $7,700 that it carried forward to year 2. In year 2, ignoring any carryovers from other years, Hill reported a loss for tax purposes of $72,250. The current year loss includes a $13,800 net capital gain.
What is Hill’s year 2 net operating loss?
Assume that in year 1 Hill Corporation reported a net operating loss of $14,700 that it carried forward to year 2. In year 1, Hill also reported a net capital loss of $7,700 that it carried forward to year 2. In year 2, ignoring any carryovers from other years, Hill reported a loss for tax purposes of $72,250. The current year loss includes a $13,800 net capital gain.
Explanation / Answer
Year 2 Loss $72250 which includes $13800 net capital gain
So operating loss= $72250+$13800=$86050
As capital gain or loss is different from net operating loss and this will be used for offsetting the previous year losses.A firm with net operating loss carryforwards can recognize capital gains without paying taxes in the current year. Instead, the realized gain will offset part of the net operating loss carryforward and reduce the stock of carryforwards taken into the future.