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Question: A subsidiary that has a net operating


A subsidiary that has a net operating loss carry-forward is acquired. The related deferred income tax asset is $230,000. Because the parent believes that a portion of this carry-forward likely will never be used, it also recognizes a valuation allowance of $150,000. At the end of the first year of ownership, the parent reassesses the situation and determines that the valuation allowance should be reduced to $110,000. What effect does this change have on the business combination’s reporting?

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