a. Presented below is a schedule showing the taxable income (TI), pretax financial income (PFI), and Federal income taxes paid for each reporting year ended December 31. Taxes Paid $8 Year YROS YR09 YR10 YR11 TI and PFI $40 20 10 (80) Income Tax Rate .20 .30 .40 .50 6 4 0 Note: The company has no permanent or temporary differences, and no deferred tax balances exist. b. Assume that under current Federal income tax law: 1. Corporations are permitted to carryback operating losses for 2 years. 2. Corporations are permitted to carryforward operating losses for 3 years. 3. NOL deductions are limited to 80% of taxable income in the year the deduction is claimed. c. The table below discloses the taxable income the company expects to report for each year. Also presented are the tax rates for future years which are set forth under current tax law. Year YR12 YR13 YR14 YR15 Expected Taxable Income $5 10 30 40 Income Tax Rate .60 .60 .60 .60 In accounting for the NOL, assume the company has elected to first use the carryback provisions of the law. 20. The YR11 journal entry to record a valuation account related to deferred tax balances would be (round amounts to the nearest dollar): 8 a. Allowance to Reduce DTA to Expected Realizable Value Deferred Tax Asset 8 12 b. Tax Benefit of NOL Carryforward Allowance to Reduce DTA to Expected Realizable Value 12 16 c. Tax Benefit of NOL Carryforward Allowance to Reduce DTA to Expected Realizable Value 16 d. No valuation account is needed in this case. e. None of the above. a. Presented below is a schedule showing the taxable income (TI), pretax financial income (PFI), and Federal income taxes paid for each reporting year ended December 31. Taxes Paid $8 Year YROS YR09 YR10 YR11 TI and PFI $40 20 10 (80) Income Tax Rate .20 .30 .40 .50 6 4 0 Note: The company has no permanent or temporary differences, and no deferred tax balances exist. b. Assume that under current Federal income tax law: 1. Corporations are permitted to carryback operating losses for 2 years. 2. Corporations are permitted to carryforward operating losses for 3 years. 3. NOL deductions are limited to 80% of taxable income in the year the deduction is claimed. c. The table below discloses the taxable income the company expects to report for each year. Also presented are the tax rates for future years which are set forth under current tax law. Year YR12 YR13 YR14 YR15 Expected Taxable Income $5 10 30 40 Income Tax Rate .60 .60 .60 .60 In accounting for the NOL, assume the company has elected to first use the carryback provisions of the law. 20. The YR11 journal entry to record a valuation account related to deferred tax balances would be (round amounts to the nearest dollar): 8 a. Allowance to Reduce DTA to Expected Realizable Value Deferred Tax Asset 8 12 b. Tax Benefit of NOL Carryforward Allowance to Reduce DTA to Expected Realizable Value 12 16 c. Tax Benefit of NOL Carryforward Allowance to Reduce DTA to Expected Realizable Value 16 d. No valuation account is needed in this case. e. None of the above
