Chapter 16, Problem 16.11P

1.

To determine

Valuation Allowance

Valuation allowance is that financial item that offsets the deferred tax assets either fully or partly as deferred tax assets are more likely not realizable.

Deferred tax asset

When the Income Tax Expense account i.e. the estimated income tax amount is more than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be debited to Deferred Tax Asset account.

To explain: The reason for which Company D’s current and non-current deferred tax liabilities were not reported explicitly.

2.

To determine

To explain: The valuation allowance against deferred tax assets.

3.

To determine

To explain: If the amount recorded in a valuation allowance is permanent?

4.

To determine

To calculate: The effect on D’s 2013 net income of the change in D’s valuation allowance for its deferred tax assets.