In its first three years of operations Carlos Productions, a musical production company, reported the following operating income (loss) amounts: 2019 $ 450,000 2020 (1,000,000) 2021 1,800,000 There were no other deferred income tax amounts in any year. The enacted income tax rate was 25% in 2020 and 30% thereafter. In its 2020 balance sheet, what amount of deferred tax asset should Carlos report relevant to the NOL? (It concludes that no valuation allowance is necessary.)

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Business

Leon Tucker

5 July, 15:24

In its first three years of operations Carlos Productions, a musical production company, reported the following operating income (loss) amounts: 2019 $ 450,000 2020 (1,000,000) 2021 1,800,000 There were no other deferred income tax amounts in any year. The enacted income tax rate was 25% in 2020 and 30% thereafter. In its 2020 balance sheet, what amount of deferred tax asset should Carlos report relevant to the NOL? (It concludes that no valuation allowance is necessary.)

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Valentina Cline · Answer 1

Temporary Difference

2020 Loss $ (1,000,000) * 25%=$250,000

The $250,000 is deductible temporary difference and will be recorded as

Deferred Tax Asset Dr.$250,000

Deferred Tax Income Cr.$250,000

It is given in question that company has $1.8 million profits in 2021, therefore in such case deferred tax asset is recorded as there is certain that company will have profits in future.