1) A firm\'s ending DTA is $20,000. Management is more than 50% sure that future
ID: 2522956 • Letter: 1
Question
1) A firm's ending DTA is $20,000. Management is more than 50% sure that future taxable income will be at least $60,000, but is quite uncertain about amounts greater than $60,000. The future tax rate is 25%. There is no other source of support for the DTA. Determine the firm's net DTA (DTA less VA, if needed).
a. 5,000
b. 15,000
c. 10,000
d. 20,000
e. 0
2) After recording all JEs and closing the accounts, a firm ended 20x4 with $60,000 of remaining NOL CF (a post-new tax law CF) but no other future differences. With a tax rate of 25%, that means the firm ended 20x4 with a $15,000 DTA. Then, for 20x5, taxable income is $40,000. Determine 20x5 income tax expense.
a. 10,000
b. 8,000
c. 12,000
d. 6,000
e. 6,500
a. 5,000
b. 15,000
c. 10,000
d. 20,000
e. 0
Explanation / Answer
1) Current DTA with the company = 20000
Management expecting taxable income = 60000
Tax Rate = 25%
Maximum DTA that can be carried in the books will be = 60000*25% =15000/-
Therefore answer is Option B = 15000.
2) DTA = 60000*25% =15000
2005 Taxable income =40000
so tax for the current year would be = 40000*25% = 10000 ( it would be settled against the previous DTA)
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