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You have been provided with the following information. After reviewing this information, explain what additional information you would want to know before determining whether or not a valuation allowance is required. You are preparing the 2020 federal tax provision for your client, NewTech Inc., a software engineering company that began business in 2010. NewTech's pre-tax book income for the last 5 years is as follows: Year Pre-Tax Book Income 1,500,000 1,000,000 (3,000,000) 800,000 2016 400,000 NewTech's prior federal taxable income for the last 3 years is as follows: Year Taxable Income 2020 2019 2018 2017 2020 2019 2,500,000 1,250,000 2018 100,000 Additionally, NewTech is forecasting future income over the next 5 years as follows: Year Pre-Tax Book Income 2022 2023 2024 2025 2026 NewTech has the following Deferred Tax Assets and Deferred Tax Liabilities: Gross Deferred as of 12/31/2020 1,000,000 500,000 2,500,000 (3,000,000) 2,000,000 3,000,000 5,000,000 6,000,000 7,000,000 Description Bad Debt Expense Accrued Vacation Capitalized R&D Fixed Asset Depreciation You have been provided with the following information. After reviewing this information, explain what additional information you would want to know before determining whether or not a valuation allowance is required. You are preparing the 2020 federal tax provision for your client, NewTech Inc., a software engineering company that began business in 2010. NewTech's pre-tax book income for the last 5 years is as follows: Year Pre-Tax Book Income 1,500,000 1,000,000 (3,000,000) 800,000 2016 400,000 NewTech's prior federal taxable income for the last 3 years is as follows: Year Taxable Income 2020 2019 2018 2017 2020 2019 2,500,000 1,250,000 2018 100,000 Additionally, NewTech is forecasting future income over the next 5 years as follows: Year Pre-Tax Book Income 2022 2023 2024 2025 2026 NewTech has the following Deferred Tax Assets and Deferred Tax Liabilities: Gross Deferred as of 12/31/2020 1,000,000 500,000 2,500,000 (3,000,000) 2,000,000 3,000,000 5,000,000 6,000,000 7,000,000 Description Bad Debt Expense Accrued Vacation Capitalized R&D Fixed Asset Depreciation
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Answer rating: 100% (QA)
To determine whether a valuation allowance is required for NewTech Inc we need to assess the realizability of its Deferred Tax Assets DTA in relation ... View the full answer
Related Book For
Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg
Posted Date:
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