Horner Corporation has a deferred tax asset at December 31, 2015 of $160,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2012-2014; 35% for 2015; and 30% for 2016 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation account should be established in the amount of:

Question

Quizplus · Accepted Answer

The valuation account should be established for the portion of the deferred tax asset that management expects will not be realized. In this case, since management expects only 50% of the related benefits to be realized, the valuation account should be established for 50% of the deferred tax asset, which is $80,000 (50% x $160,000). Therefore, the correct answer is option A.

Horner Corporation Has a Deferred Tax Asset at December 31