Bailey Company has a deferred tax asset of $1,000,000 at December 31,2014.This amount arises from the recording of the company's liability for postretirement benefits other than pensions.The company's CPA has asked management whether a valuation allowance should be recorded to reduce the deferred tax asset to zero
Required:
1.Why would Bailey not want to report a valuation allowance?
2.What evidence might the company offer to argue against recording a valuation allowance?
3.Assume that the company determines that a valuation allowance of $400,000 is required.How would the company have arrived at this determination,and what effect will it have on net income for fiscal 2014?

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The Answer of Bailey Company has a deferred tax asset of $1,000,000 at December 31,2014.This amount arises from the recording of the company's liability for postretirement benefits other than pensions.The company's CPA has asked management whether a valuation allowance should be recorded to reduce the deferred tax asset to zero
Required:
1.Why would Bailey not want to report a valuation allowance?
2.What evidence might the company offer to argue against recording a valuation allowance?
3.Assume that the company determines that a valuation allowance of $400,000 is required.How would the company have arrived at this determination,and what effect will it have on net income for fiscal 2014?

Bailey Company Has a Deferred Tax Asset of $1,000,000 at December