medium · Financial Accounting accounting-cycle-financial-statements

If the entity's profitability improves and management decides the DTA is now 'more likely than not' to be realized, what is the impact on the financial statements?

1. A $100,000 gain is recorded directly in Other Comprehensive Income (OCI) rather than the income statement.
2. A $100,000 income tax benefit is recognized in the income statement, and the DTA net balance increases to $100,000.
3. No income statement impact occurs at all; the valuation allowance is simply removed quietly from the balance sheet.
4. The $100,000 allowance release is recorded as a direct credit to Retained Earnings, bypassing the income statement entirely.

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