The following information pertains to ABC Inc.: Assume that ABC Inc.meets the more likely than not criteria for tax loss carry forward recognition.The tax rate for 2015 and beyond is expected to be 20%,and this rate was not known when the 2014 tax return was filed.This information would result in:
A) a Deferred Tax Asset - Carry forward in the amount of $108,000.
B) a Deferred Tax Asset - Carry forward in the amount of $135,000.
C) a Deferred Tax Asset - Carry forward in the amount of $47,500.
D) a Deferred Tax Asset - Carry forward in the amount of $38,000.

Question

The following information pertains to ABC Inc.:  Assume that ABC Inc.meets the more likely than not criteria for tax loss carry forward recognition.The tax rate for 2015 and beyond is expected to be 20%,and this rate was not known when the 2014 tax return was filed.This information would result in:
A) a Deferred Tax Asset - Carry forward in the amount of $108,000. 
B) a Deferred Tax Asset - Carry forward in the amount of $135,000. 
C) a Deferred Tax Asset - Carry forward in the amount of $47,500. 
D) a Deferred Tax Asset - Carry forward in the amount of $38,000.

Quizplus · Accepted Answer

The tax loss carry forward will result in a Deferred Tax Asset, which is calculated by multiplying the tax loss carry forward amount by the expected tax rate (20%). 
Deferred Tax Asset - Carry forward = Tax Loss Carry Forward x Expected Tax Rate
= $675,000 x 20% 
= $135,000. Therefore, the correct answer is B.

The Following Information Pertains to ABC Inc