LOL (the "Company"), an SEC registrant with a calendar year-end, is a manufacturer and distributor of sports equipment. The Company was created in 1989 and is headquartered in Southern California. The Company has manufacturing operations and numerous sales and administrative locations in the United States. LOL files a consolidated U.S . federal tax return. (This case will not consider the evaluation of the state jurisdictions; it will only consider the federal jurisdiction.)As LOL's auditors, you are now performing the Company's year-end audit for the fiscal year ended December 31, 2010, and have the following information available to you:

?LOL draft income statement and excerpt from tax footnote as of December 31, 2010 (Handout 1).

?A deferred tax asset realization analysis showing pre-tax book income projections (Handout 2).

?The projected income schedule (realization analysis above) projects organic growth beginning in 2012 after stemming the decrease in pre-tax book income.

?LOL does not have the ability to carry back any losses to prior periods.

?A significant customer declared bankruptcy in 2010; therefore, the Company wrote off all accounts receivable from this customer. The Company is considering the exclusion of such expense when evaluating whether future income is objectively verifiable.

?The Company does not have a history of operating losses or tax credit carry forwards expiring unused.

?The Company has identified the following possible tax-planning strategies:oSelling and leasing back manufacturing equipment that would result in a taxable gain of $20 million. oSelling the primary manufacturing facility at a gain to offset existing capital loss carryforwards.

Required:

?Question 1 ? What are the four possible sources of taxable income according to ASC 740?

?Question 2 ? How much of the reversing taxable temporary differences may be considered in estimating future taxable income? Case 13-10Ac: LOL