Question

A net operating loss carryforward creates a tax benefit on the income statement in the year:

a) it is incurred
b) when the deferred tax asset reverses
c) when the net operating loss carryforward expires
d) when it is used

Answer 1

A net operating loss carryforward creates a tax benefit on the income statement in the year when it is used to offset taxable income.

Step-by-step explanation:

The tax benefit of a net operating loss carryforward is recognized in the income statement in the year when it is utilized to offset taxable income. This means the correct answer to when a net operating loss carryforward creates a tax benefit on the income statement is d) when it is used.

The benefit occurs because the carryforward reduces the company's taxable income, thereby lowering its tax liability. It does not create an immediate tax benefit in the year the loss is incurred, nor does it depend on the expiration of the net operating loss or solely on the reversal of the deferred tax asset.