A CANADIAN COMPANY HAS A TOTAL OF $450,000 IN TAX LOSS CARRYFORWAR...

26. A Canadian company has a total of $450,000 in tax loss carryforwards. To use these losses and to diversify its operations, a US company has acquired the Canadian company through a merger. The US company expects to have earnings before taxes of $300,000 per year. Assume: the US company is in the 40-percent tax bracket and all the losses can be carried forward. How much tax can the US company reduce through this merger? * A. $180,000 B. $250,000 C. $300,000 D. $450,000 E. $500,000 Solution: Reduction in tax = the loss involved multiplied by the tax rate: $450,000 x 0.40 = $180,000.