Question

If a net operating loss (NOL) carryback is allowed to be recognized, it usually:

(a) Is reflected as a deferred tax liability at the end of the NOL year.
(b) Results in a current receivable in the NOL year.
(c) Is subject to a valuation allowance.
(d) Is reflected as deferred tax asset at the end of the NOL year.

Answer 1

A net operating loss carryback is recognized as a current receivable in the NOL year because it represents the expected refund from applying the loss to previous years' tax payments.

Step-by-step explanation:

If a net operating loss (NOL) carryback is allowed to be recognized, it usually results in a current receivable in the NOL year. When a business incurs a net operating loss, it can apply this loss to previous years' tax returns to receive a refund for taxes previously paid. This carryback creates a receivable from the government, as the business will expect a tax refund. This is accounted for in the financial statements of the year in which the loss was recognized, not as a deferred tax asset or liability. A deferred tax asset would be recognized if the NOL is being carried forward to offset taxable income in future years. It is not typically subject to a valuation allowance unless there is doubt about the ability to realize the asset in future periods.