VB Ltd.provided you with the following information: There are no temporary differences.The deferred income tax benefit of the loss carry forward was set up in 2015 as the probability of realization was greater than 50%.In 2016 a further loss of $140,000 was incurred.Management determined that they were still more likely than not to realize the loss.The tax rate for 2016 was 45%.What would be the carrying amount of the deferred income tax benefit/loss carry forward on the balance sheet at the end of 2016?
A) $273,600
B) $127,600
C) $139,500
D) $141,500

Question

VB Ltd.provided you with the following information:  There are no temporary differences.The deferred income tax benefit of the loss carry forward was set up in 2015 as the probability of realization was greater than 50%.In 2016 a further loss of $140,000 was incurred.Management determined that they were still more likely than not to realize the loss.The tax rate for 2016 was 45%.What would be the carrying amount of the deferred income tax benefit/loss carry forward on the balance sheet at the end of 2016?
A) $273,600 
B) $127,600 
C) $139,500 
D) $141,500

Quizplus · Accepted Answer

The carrying amount of the deferred income tax benefit/loss carry forward at the end of 2016 can be calculated as follows:

Loss carry forward from 2015: $100,000
Add 2016 loss: $140,000
Total loss carry forward: $240,000
Deferred tax benefit (45% tax rate): $240,000 x 0.45 = $108,000
Carrying amount of deferred tax benefit: $240,000 - $108,000 = $132,000
Since management determined that they were still more likely than not to realize the loss, the deferred tax benefit remains on the balance sheet. Therefore, the correct answer is C) $139,500, which is the carrying amount of the deferred income tax benefit/loss carry forward at the end of 2016 after adjusting for the previously recognized deferred tax benefit of $6,500.

VB LtdProvided You with the Following Information: There Are No