Question

Studios reported a net capital loss of $37,500 in Year 5. It reported net capital gains of $29,000 in Year 4 and $42,000 in Year 6. What is the amount and nature of the book–tax difference in Year 6 related to the net capital carryover?

Answer 1

Answer:

$8,500 favorable

Explanation:

Data provided in the question

Net capital loss in year 5 = $37,500

Net capital gains in year 4 = $29,000

Net capital gains in year 6 = $42,000

So the amount and the nature of the book tax difference in year 6 is

Tax purpose

= Net capital loss in year 5 - Net capital gains in year 4

= $37,500 - $29,000

= $8,500

So in year 6, the tax purpose is $8,500 which is deducted and for book purpose it is zero.