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20 August, 13:35

Horner Corporation has a deferred tax asset at December 31, 2015 of $160,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2012-2014; 35% for 2015; and 30% for 2016 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation account should be established in the amount of:$80,000

$60,000

$40,000

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  1. 20 August, 14:11
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    Valuation account = $80,000

    Explanation:

    Given:

    Valuation allowance is treated as a provision for doubtful debts.

    Given:

    Total Deferred tax asset = $160,000 * 50% = $80,000

    Total benefited Deferred tax asset = $160,000 * 50% = $80,000

    Computation of Valuation account:

    Valuation account = Total Deferred tax asset - Total benefited Deferred tax asset

    Valuation account = $160,000 - $80,000

    Valuation account = $80,000
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