The following information for JMR Corporation is available: JMR applies its tax losses sequentially,that is,tax losses are carried back as far as possible.The taxes recovered for the year ended 2014 amounted to:
A) $150,000.
B) $0.
C) $48,100.
D) $43,750.

Question

The following information for JMR Corporation is available:  JMR applies its tax losses sequentially,that is,tax losses are carried back as far as possible.The taxes recovered for the year ended 2014 amounted to:
A) $150,000. 
B) $0. 
C) $48,100. 
D) $43,750.

Quizplus · Accepted Answer

The fact that JMR applies its tax losses sequentially indicates that they first use up all available carry-back options before starting to carry the remaining losses forward. Therefore, the taxes recovered in 2014 would have come from the earliest carry-back year possible, which according to the information provided, is 3 years prior to 2014 (as there is no mention of any loss carry-back for the 2011 and 2012 tax years). We know that JMR had a loss of $350,000 in 2011 and $200,000 in 2013. Thus, the maximum tax recovery possible would be $48,100 (i.e. 35% of $350,000 + 15% of $200,000). Therefore, the correct answer is C.

The Following Information for JMR Corporation Is Available: JMR