Delta Air Lines revealed in its 10-K filing that its valuation allowance for deferred tax assets at
Question:
Delta Air Lines Inc. (DAL) led shares of U.S. carriers higher after posting fourth-quarter profit that topped analysts' estimates and forecasting an operating margin of as much as 8 percent in this year's initial three months. . . . Airlines are benefiting from lower fuel prices, constraints on capacity growth, controls on operating costs and demand that's keeping planes full, said Ray Neidl of Nexa Capital Partners LLC, a Washington-based aerospace and transportation consulting firm. . . . Net income was $8.48 billion, including an $8 billion non-cash gain from the reversal of a tax valuation allowance.
Mary Schlangenstein, "Delta Leads Airline Stock Gains as Profit Beats Estimates," Bloomberg, January 21, 2014.
The following is an excerpt from a disclosure note to Delta's 2013 financial statements:
Required:
1. As indicated in the note, Delta had both deferred tax assets and deferred tax liabilities at the end of 2013. Some of each were current, some noncurrent. The balance sheet that year, though, reported only noncurrent deferred tax assets and current deferred tax assets. Explain why Delta's current deferred tax liabilities and noncurrent deferred tax liabilities were not explicitly reported. Explain what the current and noncurrent deferred tax assets represent.
2. What is a valuation allowance against deferred tax assets? When must such an allowance be recorded? Use Delta's situation to help illustrate your response.
3. Is an amount recorded in a valuation allowance for a deferred tax asset permanent? Explain why Delta is able to reclaim its valuation allowance.
4. Consider the excerpt from Bloomberg's press release. Recalculate the effect on Delta's 2013 net income of the change in Delta's valuation allowance for its deferred tax assets.
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Step by Step Answer:
Intermediate Accounting
ISBN: 9781259722660
9th Edition
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas