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3. Adams Corporation has total deferred tax assets of $3,000,000 at year-end. Management is assessing whether a valuation allowance must be recorded against some or all of the deferred tax assets. What level of assurance must management have, based on the

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3. Adams Corporation has total deferred tax assets of $3,000,000 at
year-end. Management is assessing whether a valuation allowance must be recorded against some or all of the deferred tax assets. What level of assurance must management have, based on the weight of available evidence, that some or all of the deferred tax assets will not be realized before a valuation allowance is required?
a. Probable.
b. More likely than not.
c. Realistic possibility.
d. Reasonable.
e. More than remote.


4. Which of the following evidence would not be considered positive in determining whether Adams Corporation needs to record a valuation allowance for some or all of its deferred tax assets?

a. The company forecasts future taxable income because of its backlog of orders.

b. The company has unfavorable temporary differences that will create future taxable income when they reverse.

c. The company has tax-planning strategies that it can implement to create future taxable income.

d. The company has cumulative net income over the current and prior two years.

e. The company had a net operating loss carryover expire in the current year.

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