Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

XYZ Company has a 3-year cumulative loss position of ($20,000). XYZ Company has historically had reliable and accurate forecasts and the engagement team has tested

XYZ Company has a 3-year cumulative loss position of ($20,000). XYZ Company has historically had reliable and accurate forecasts and the engagement team has tested the Company's forecasting process. Consider the following: Gross deductible temporary differences at 12/31/CY of $250,000, related to net operating loss carryforwards that do not expire. XYZ Company entered into a significant new agreement during the year with a 3rd party which is expected to continue to generate a profit in future years. The engagement team has tested this agreement and its impact on management's future projections which was deemed reasonable. Forecasted pre-tax book income of $150,000 for 12/31/CY+1. This level of income is expected for the next 5 years. The applicable tax rate is 21% for the current and future years. Which do you recommend: a full, partial, or no valuation allowance for 12/31/CY?

A. Partial valuation allowance: The fact pattern does not meet the more-likely-than-not standard

B. Full valuation allowance: XYZ Company is in a 3-year cumulative loss position

C. No valuation allowance: Realization of the DTA is more likely than not given the possible sources of taxable income

D. Partial valuation allowance: The forecasted pre-tax income is not sufficient to realize the deferred tax assets at 12/31CY

Step by Step Solution

3.40 Rating (153 Votes )

There are 3 Steps involved in it

Step: 1

While the fact pattern does not meet the morelikelythannot standard there is a par... 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

Price theory and applications

Authors: Steven E landsburg

8th edition

538746459, 1133008321, 780538746458, 9781133008323, 978-0538746458

More Books

Students also viewed these Accounting questions

Question

Why are marketers concerned about consumer attitudes?

Answered: 1 week ago

Question

Give codons for the following amino acids: (a) Th (b) Asp (c) Thr

Answered: 1 week ago