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

Question

Quizplus · Accepted Answer

A cumulative book loss is negative evidence that must be evaluated along with other evidence as to whether a valuation allowance should be recorded. It is an indication that the company may not be able to generate future taxable income to utilize its deferred tax assets. However, it should be evaluated in the context of the company's overall financial performance and future projections. The 36-month period is not a definitive threshold for determining whether a valuation allowance is necessary.

Knollcrest Corporation Has a Cumulative Book Loss Over the Past