Knollcrest Corporation has a cumulative book loss over the past 36 months. Which ofthe following statements best describes how this fact enters into the valuation allowance analysis?

Question

Quizplus · Accepted Answer

A cumulative book loss over a period of time is considered negative evidence that suggests it is more likely than not that the deferred tax assets will not be realized in the future. However, it is not sufficient evidence on its own to justify a valuation allowance. Other factors, such as the company's future profitability and tax planning strategies, also need to be considered to determine the amount and necessity of the valuation allowance.

Knollcrest Corporation Has a Cumulative Book Loss Over the Past