Question

What information must be disclosed in the disclosure notes to the financial statements for net operating loss carryforwards?

A. The offset of the carryback provision.
B. The reason for the loss.
C. The amounts only.
D. The amount and expiration dates.

Answer 1

Disclosure notes for net operating loss carryforwards should include the amounts, how they affect future taxable income, and their expiration dates, providing a clear understanding of their impact on future tax liabilities.

Step-by-step explanation:

When disclosing information about net operating loss carryforwards in the notes to the financial statements, it is required to provide more than just the amounts. The disclosure should include the total amounts of the net operating loss carryforwards, a description of how the carryforwards will affect future taxable income, and the expiration dates of the loss carryforwards. These disclosures ensure that financial statement users understand the timing, usability, and potential benefit of these tax assets.

Specifically, the disclosure can detail the effect of tax laws and potential changes on the carryforwards, any limitations on their use, and the valuation allowance, if any, related to the deferred tax assets from the carryforwards. This information is pertinent for assessing the company's future tax liabilities and overall financial health.