Bailey Company Has a Deferred Tax Asset of $1,000,000 at December

question 51

Essay

Bailey Company has a deferred tax asset of $1,000,000 at December 31,2014.This amount arises from the recording of the company's liability for postretirement benefits other than pensions.The company's CPA has asked management whether a valuation allowance should be recorded to reduce the deferred tax asset to zero
Required:
1.Why would Bailey not want to report a valuation allowance?
2.What evidence might the company offer to argue against recording a valuation allowance?
3.Assume that the company determines that a valuation allowance of $400,000 is required.How would the company have arrived at this determination,and what effect will it have on net income for fiscal 2014?

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Definitions:

Express More Negative Emotions

The act of displaying or expressing feelings that are considered undesirable or pessimistic more frequently.

High Power Individuals

People who hold considerable authority, influence, or control within a society or organization.

Inhibitory Reaction

A biological or psychological response that slows or stops a particular process, often seen in neural pathways to prevent overstimulation.

Approach Reaction

Involves moving towards something perceived as desirable or beneficial, often discussed in the context of psychological responses to stimuli or situations.