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Downdraft has a net operating loss of $1,000,000 and no remaining assets. Everhopeful Inc buys...

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Accounting

Downdraft has a net operating loss of $1,000,000 and no remaining assets. Everhopeful Inc buys the shares of Downdraft for $30,000 hoping to shelter its future income with Downdraft's NOL. At the time of the acquisition the government long-term tax exempt rate is 2%. The year after the acquisition the new combined entity has taxable income before any NOL deduction of $50,000.

37. How much of the Downdraft NOL can the combined corporation use?

38. Using the facts of the previous question suppose the taxable income for the combined entity for the year after Everhopefull acquired Downdraft was $500. How much of the Downdraft NOL could the combined entity use?

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