medium · Financial Accounting accounting-cycle-financial-statements
A firm has a Net Operating Loss (NOL) of 200,000 in a year when the tax rate is 21%. It records a Deferred Tax Asset (DTA) of 42,000.
If management determines it is 'more likely than not' that only 10,000 of the tax benefit will be realized, what is the impact on the Income Statement?
- Net Income increases by 10,000.
- Other Comprehensive Income (OCI) decreases by 32,000.
- No impact, as the valuation allowance is only a balance sheet account.
- Income Tax Expense increases by 32,000.
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