JR Company Incurred a Loss in 2011, Due in Part

question 56

Multiple Choice

JR Company incurred a loss in 2011, due in part to a fire at one of its plants.The deferred benefit of a loss carry forward was not recognized in the year as the probability of realization was less than 50%.In 2012, JR Company incurred a small loss, but due to large contracts upcoming, it was determined that the probability of realization was greater than 50%.The tax rate for 2011 was 40% and 2012 45%.JR Company should:

• A)Record the deferred income tax benefit for 2011 only.
• B)Record the deferred income tax benefit for both years using the 45% rate.
• C)Record the deferred income tax benefit for 2012 only.
• D)Record the deferred income tax benefit for both years using the 40% rate.

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Definitions:

Substantial Evidence Test

A legal standard used by courts to review administrative decisions, determining if the decisions are supported by substantial evidence on the record.

Formal Agency Adjudications

Legal processes within federal agencies involving the resolution of disputes or determination of rights through hearings and decisions.

Office of Management and Budget

A federal office within the Executive Office of the President of the United States responsible for devising and submitting the president's budget proposal to Congress.

Cost-Benefit Analyses

The process of comparing the costs and benefits associated with a decision, project, or policy to determine its feasibility or desirability.