During Its First Year of Operations, 2014, the Cocoa Company $\quad$

question 68

Multiple Choice

During its first year of operations, 2014, the Cocoa Company reported both a pretax financial and a taxable loss of $300,000. The income tax rate is 30% for the current and future years. Due to a sufficient backlog of sales orders, Cocoa did not establish a valuation allowance to reduce the $90,000 deferred tax asset. However, early in 2015, one major customer, representing 60% of the 2015 year-end sales backlog, went bankrupt. Cocoa now believes that it is more likely than not that 75% of the deferred tax asset will not be realized. The entry to record the valuation allowance would be

• A) Income Tax Expense \(\quad \)\(\quad \)67,500
• Deferred Tax Asset \(\quad \)\(\quad \)67,500
• B) Income Tax Benefit from Operating
• Loss Carryforward \(\quad \)\(\quad \)\(\quad \)\(\quad \)67,500
• Deferred Tax Asset\(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad \) 67,500
• C) Income Tax Expense \(\quad \)\(\quad \)\(\quad \)67,500
• Allowance to Reduce Deferred
• Tax Asset to Realizable Value\(\quad \)\(\quad \)\(\quad \) 67,500
• D) Allowance to Reduce Deferred Tax
• Asset to Realizable Value \(\quad \)\(\quad \)67,500
• Income Tax Expense \(\quad \)\(\quad \)67,500

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