When Assessing Realizability of Deferred Tax Assets, Management Must Consider

question 3

Multiple Choice

When assessing realizability of deferred tax assets, management must consider positive and negative evidence. Which of the following would be considered negative evidence?

• A) existing contracts or firm sales backlog
• B) a carryback or carryforward period that is so brief it could limit realization of tax benefits
• C) taxable income in prior carryback year(s) if carryback is permitted under the tax law
• D) a strong earnings history exclusive of the loss that created the future deductible amount

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Definitions:

Default Risk

The risk that a borrower will not repay a loan according to the agreed terms, leading to potential losses for the lender.

Glass-Steagall Act

An act of Congress in 1933 that separated investment banking from retail banking to reduce financial speculative bubbles and prevent bank failures.

Commercial Banking

Banking services provided to businesses and individuals, including deposit taking, lending, and various other financial transactions.

Investment Banking

A sector of the banking industry that deals with the creation of capital for other companies, governments, and other entities.