In 2015,its first year of operations,Neuro Inc.experienced a $234,000 net operating loss and recorded a deferred tax asset of $81,900.Neuro decides that it is more likely than not that it will only be able to generate $175,000 of taxable income during the carryforward period.As a result,without generating additional future taxable income it will not be able to fully realize the NOL carryforward benefit.In order to account for this,what amount will Neuro Inc.record as a valuation allowance?

Question

Quizplus · Accepted Answer

The valuation allowance is calculated as the excess of the deferred tax asset over the expected future taxable income that will be available to offset the NOL carryforward. In this case, the deferred tax asset is $81,900 and the expected future taxable income is $175,000. Therefore, the valuation allowance is $81,900 - $175,000 = $20,650.

In 2015,its First Year of Operations,Neuro Inc