JR Company incurred a loss in 2011, due in part to a fire at one of its plants.The deferred benefit of a loss carry forward was not recognized in the year as the probability of realization was less than 50%.In 2012, JR Company incurred a small loss, but due to large contracts upcoming, it was determined that the probability of realization was greater than 50%.The tax rate for 2011 was 40% and 2012 45%.JR Company should:

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In accounting, when the probability of realizing a deferred tax asset (such as a loss carryforward) becomes greater than 50%, the asset should be recognized in the financial statements. Since JR Company's outlook improved in 2012, making the realization of the deferred tax asset probable, it should recognize the deferred tax benefit for both 2011 and 2012. The tax rate applied should be the one in effect when the benefit is realized, which is 45% for 2012.

JR Company Incurred a Loss in 2011, Due in Part