Question
9. After recording its deferred tax liabilities, deferred tax assets, and current taxes payable for the year, Pugs, Inc. identified the following items which do
9. After recording its deferred tax liabilities, deferred tax assets, and current taxes payable for the year, Pugs, Inc. identified the following items which do NOT meet the more likely than not standard. For which of the following items would it be appropriate for Pugs to create a valuation allowance?
A. Pugs sold some land in the current year, generating a $100,000 capital loss. It does not have any capital gains in the current year or in the prior two years and does not expect to realize any capital gains in the next five years.
B. It is not clear if some of the expenses Pugs is using in to calculate its tax credit for research and development expenses qualify as research and development expenses.
C. Pugs is undergoing a transfer pricing audit related to its operations in Norway and expects to pay a substantial amount of additional income tax related to this audit.
D. All of the above call for a valuation allowance
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