No net deferred tax asset (i.e., deferred tax asset net of related valuation allowance) was recognized in the year 2 financial statements by the Chaise Company when a loss from discontinued segments was carried forward for tax purposes because it was more likely than not that none of this deferred tax asset would be realized. Chaise had no temporary differences. The tax benefit of the loss carried forward reduced current taxes payable on year 3 continuing operations. The year 3 income statement would include the tax benefit from the loss brought forward in
A. Cumulative effect of accounting changes.
B. Gain or loss from discontinued segments.
C. Income from continuing operations.
D. Extraordinary gains.
Answer:C
C is corrent. Per ASC Topic 740, the tax benefit of an operating loss carryforward or carryback shall be reported in the same manner as the source of income (loss) in the current year. The problem states that the tax benefit of the loss reduced taxes on continuing operations. Thus, in year 3 , the tax benefit shall be reported under income from continuing operations.
