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Posted: 04 May 2010 at 16:12 | IP Logged  

Eller Company started operations on 1/1/X1 and has reported profits for its first three years.  X4 operations have resulted in a $100,000 operating loss for tax purposes.  Which of the following statements are true?

I.    If Eller "carries back" the $100,000 loss, a deferred tax asset will result.

II.   If Eller "carries forward" the entire $100,000 loss, a $100,000 tax benefit will be shown on its X4 income statement.

A .None are true

B I only

C. II only

D. I and II

The correct answer is A.

I thought statement II is correct? How to make II correct then?? Thanks

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Posted: 08 May 2010 at 21:10 | IP Logged  


I came across this one today, I thought the carrying it forward would create a tax benefit

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Posted: 08 May 2010 at 22:10 | IP Logged  

The deferred tax asset/tax benefit will only be the loss
carryforward multiplied by the tax rate. So if the tax rate
is 30%, the deferred tax asset/income tax benefit would be
$30,000, not 100,000.

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Posted: 09 May 2010 at 14:46 | IP Logged  

II is wrong because DTA is reported on the balance sheet and not the income statement.
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