Required:

Facts: FTW $($the $$Company$),$ an SEC registrant with a calendar year$-$end, is a manufacturer and distributor of manufacturing equipment. The Company was created in $1992$ and is headquartered in Florida. The Company has manufacturing operations and numerous sales and administrative locations in the United States. FTW files a consolidated US federal tax return. $($This case will not consider the evaluation of the state jurisdictions; it will only consider the federal jurisdiction.$)$

As FTW$$s auditors, you are now performing the Company$$s year$-$end audit for the fiscal year ended December $31,2023,$ and have the following information available to you:

$$ FTW draft income statement and excerpt from tax footnote as of December $31,2023($Appendix A$).$

$$ A deferred tax asset realization analysis showing pre$-$tax book income projections $($Appendix B$).$

$$ The projected income schedule projects organic growth beginning in $2025$ after stemming the decrease in pre$-$tax book income.

$$ FTW does not have the ability to carryback any losses to prior periods.

$$ A significant customer declared bankruptcy in $2023$ therefore, the Company wrote off all accounts receivable from this customer. The Company is considering the exclusion of such expense when evaluating if future income is objectively verifiable.

$$ The Company does not have a history of operating losses or tax credit carryforwards expiring unused.

$$ The Company has identified the following possible tax$-$planning strategies:

o Selling and leasing back manufacturing equipment that would result in a taxable gain of $$20$ million.

o Selling the primary manufacturing facility at a gain to offset existing capital loss carryforwards.

$1.$ What are the four possible sources of future taxable income according to ASC $740?$

$2.$ How much of FTW$$s existing taxable temporary differences may be considered in estimating future taxable income?

$3.$ In evaluating the income that FTW is projecting related to future operations, is FTW in a cumulative loss position $($assuming FTW considers $3$ years as the period over which to evaluate pretax accounting income or loss from continuing operations for cumulative losses$)?$

$4.$ In evaluating the income that FTW is projecting related to future operations, may FTW exclude the impact of the impairment of the nondeductible goodwill when estimating future taxable income?

$5.$ In evaluating the income that FTW is projecting related to future operations, may FTW exclude the expense from writing off the accounts receivable from the customer who declared bankruptcy when evaluating the projections of future income?

$6.$ In evaluating the income that FTW is projecting related to future operations, the Company has projected growth in its future projections. Does the evidence of historic losses affect our ability to accept the Company$$s estimate of future growth?

$7.$ In evaluating the income that FTW is projecting related to future operations, in an effort to satisfy your appropriate professional skepticism, what evidence might you ask for to support the Company$$s projections?

$8.$ Would the tax$-$planning strategy to sell and lease back manufacturing equipment be a tax$-$planning strategy that is considered prudent and feasible? Why or why not?

$9.$ Would the tax$-$planning strategy to sell but not lease back the primary manufacturing facility be a tax$-$planning strategy that is prudent and feasible? Why or why not?