Quiz 5

Question 1

Taxable temporary difference

Answer 1

DTL

Question 2

Deductible temporary difference

Answer 2

DTA

Question 3

Realizability is dependent on

Answer 3

future taxable income

Question 4

More likely than not means

Answer 4

more than 50%

Question 5

Valuations of allowance addresses the

Answer 5

realizability of an asset not the existence of an asset

Question 6

Valuation allowances are only used for blank

Answer 6

DTA’s, not DTL’s because they create a tax benefit/tax carry forward

Question 7

DTA from carry-forwards are more likely to require a DTAVA, DTAs from deductible book-tax basis differences are less likely to require a DTAVA (allowance for doubtful accounts and reserves)

Question 8

DTA from unearned revenue book-tax basis difference never requires

Answer 8

DTAVA

Question 9

Taxable income must be both of an appropriate character (i.e., capital vs. ordinary) and within the carryback or carryforward periods

Answer 9

Capital Losses – back 3 years and forward 5 years
Net Operating Losses (NOLs) – carryforward indefinitely or 20 years (pre-TCJA)
Charitable Deductions – forward 5 years
Business Interest – carryforward indefinitely

Question 10

positive evidence that future taxable income will be sufficient to avoid recording a DTAVA (Four Sources of Income):

Answer 10

1) Future reversals of existing taxable temporary differences
- Depreciation
2) Future taxable income exclusive of reversing temporary differences and carryforwards
- Profitable contracts
3) Taxable income in prior year if carrybacks are allowed
4) Tax planning strategies
Must be prudent and feasible
switching from tax-exempt income to taxable income
selling non-core assets to recognize capital gain income

Question 11

consideration and weight are given to those with the least subjectivity of the four sources of income

Answer 11

Taxable income in carryback periods (existing already – no subjectivity) these carry the most weight.

Reversals of existing taxable temporary differences (depreciation)

These (above) have little to no judgment and carry greater weight than the expectation of future income to be generated.

Future taxable income exclusive of reversing temporary differences is considered to be the least objective (most subjective), due to the judgment and estimation involved in forecasting future taxable income.

Question 12

The following provide negative evidence that future taxable income will be sufficient and that a DTAVA will be required:

Answer 12

1) Losses in recent years
– Most firms interpret this as losses in two previous years and current year (12 consecutive quarters)
2) History of expiring loss and credit carryforwards
3) Uncertainties that if resolved negatively would affect future earnings
4) Loss of significant customer, loss/expiration of patent
5) Operation in an unstable, cyclical, or declining industry

Question 14

A tax position is defined as a position taken in a previously filed return or expected to be taken in a future return

Question 15

FIN 48 applies to

Answer 15

income tax positions