XYZ Inc.is a publicly traded company.At the start of the current year,the company had tax loss carry forwards in the amount of $500,000.This amount increased by $100,000 during the year,due to a change in estimate of the company's future earnings targets.The tax rate for the current year is 25%.The enacted tax rate for future years is 20%.The company uses a valuation allowance account to track its tax loss carry forwards.Which of the following correctly describes the balances in XYZ's internal records at the end of the current year?

Question

Quizplus · Accepted Answer

The tax loss carry forward balance at the end of the year would be $600,000 ($500,000 + $100,000). The deferred tax asset balance would be $120,000 ($600,000 x 20%), and there would be a corresponding increase in the valuation allowance of $20,000. Therefore, the correct option is C: Deferred Tax Asset- Carry forward: $100,000 Dr. Valuation Allowance: $20,000 Dr.

XYZ IncIs a Publicly Traded Company