1. In early 2013, Virgin Atlantic must pay the tax authority $45,000 on the income it earned in 2012. This amount was reported on the company’s financial statements as of 31 December 2012 as:
A. income tax expense. B. a deferred tax liability. C. taxes payable.
2. What does the change in valuation allowance for deferred tax assets indicate over the period of three years from 2010-2012?
A. increased prospects for future profitability. B. decreased prospects for future profitability. C. assets being carried at a higher value than their tax base.
3. APL Corp reported a total deferred tax asset in 2009 of $45,189, offset by a $45,189 valuation allowance. APL Corp most likely:
A. Has deferred tax assets equal to deferred tax liabilities. B. Fully utilized the deferred tax asset in 2009. C. Expects not to earn any taxable income before the deferred tax asset expires.
1. C Taxes payable are the taxes that a company must pay in the immediate future.
2. A Over the given time period, changes in the valuation allowance reduced aggregate income taxes by $1,828,000. The reductions to the valuation allowance were a result of the company being more likely to earn sufficient taxable income to offset the deferred tax assets.
3. C The valuation allowance is taken when there is a greater likelihood that the company will fail to earn sufficient income to offset the deferred tax asset. Since the valuation allowance equals the asset, by extension the company expects no taxable income prior to the expiration of the deferred tax assets.