Exhibit 5-12

question 39

Multiple Choice

Exhibit 5-12.According to a Department of Labor report,the city of Detroit had a 20% unemployment rate in May of 2011 (Bureau of Labor Statistics,May,2011) .Eight working-age residents were chosen at random. Refer to Exhibit 5-12.What was the expected number of unemployed residents,when eight working-age residents were randomly selected?

• A)1.0
• B)1.6
• C)2.0
• D)6.4

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Definitions:

Valuation Allowance

A reserve created to account for future tax benefits that may not be realized, reducing the reported value of deferred tax assets to an amount that is more likely to be realized.

Deferred Tax Asset

This asset reflects the future tax benefits that a company is entitled to, due to deductible temporary differences and carryforwards.

Operating Loss

A loss that occurs when a company's operating expenses exceed its revenues.

Carryback Provision

A tax provision allowing companies to apply a current year's net operating losses to past years' profits for potential tax refunds, offsetting taxable income in profitable years.