Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Background Asbat Pharmaceuticals (Asbat) is a leading pharmaceutical company that has been in existence for 22 years. Asbat has a calendar yearend and is audited

image text in transcribed
image text in transcribed
Background Asbat Pharmaceuticals (Asbat) is a leading pharmaceutical company that has been in existence for 22 years. Asbat has a calendar yearend and is audited annually.Asbat only operates in the US and is not subject to state or local income taxation. Its total assets, exclusive of the deferred tax asset, are $3.5 million. In the early years, Asbat operated at a net loss. After its fifth year of business, upon the release of its first drug, Asbat began reporting annual net profits. These profits continued until two years ago, when, in 20, Asbat once again began reporting a net toss, which has been pnmarily attributable to signicant research and development costs. The following table presents the loss figures for Asbat. Asbat's relevant statutory tax rate is 21% and the company did not have any permanent booktax differences during 2018, 2019 or 2020. Asbat did not establish a valuation allowance to offset the deferred tax asset in 2018 or 2019. 2018 Pretax book loss $ (900,000) $10,890,000) $(Tr'5,000) Net temporary differences (210,000) (60,000) (110,000) Taxable loss (1,110,000) (1,950,000) (885,000) Statutory tax rate 21% 21% 21% Impact on the deferred tax asset balance 233,100 409,500 185,850 Net loss (after tax)* $(666,900) Deferred tax asset balance $233,100 $642,600 $828,450 Valuation allowance* Net deterred tax asset balance" $233,100 $642,600 $828,450 *Prior to determining the neeor for a valuation allowance in 2020

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Ethical Obligations and Decision Making in Accounting Text and Cases

Authors: Steven M. Mintz, Roselyn E. Morris

5th edition

1259969460, 73403997, 1260480852, 978-1259969461

More Books

Students also viewed these Accounting questions