Question

Knollcrest Corporation has a cumulative book loss over the 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

A) The book loss is considered sufficient negative evidence that valuation must be received.
B) The book loss is considered negative evidence that must be evaluated along with other evidence as to whether a valuation allowance should be received.
C) The book loss is not considered negative evidence because it relates to book income and not taxable income.
D) A cumulative book loss is considered negative evidence only after a period of 60 months.

Answer 1

D) A cumulative book loss is considered negative evidence only after a period of 60 months.

Step-by-step explanation:

• The valuation allowance is a type of contract account with a deferred tax asset and shows the amount of tax assets that have a more than 50% of the profitability of not being used in the future due to the non-availability of the sufficient future available tax incomes and just take a provident of doubtful debts.

• Thus a cumulative loss of the books will be considered to be a negative influence only after the period of the 60 months has passed as a period of 36 months can be managed.