Question - Kleckner company started operations in 2009, and although it has grown steadily,the company reported operating losses of $450,000 in its first four years in business. In the most recent year 2013, Kleckner appears to have turned the corner and reported modest taxable income of $30,000. In addition to a deferred tax asset related to its net operating loss, Kleckner has has reported a deferred tax asset related to product warranties and deferred tax liability related to accelerated depreciation. Given its past operating results, Kleckner has established a full valuation allowance for its deferred tax assets. However, given its improved performance, Kleckner management wonders whether the company can now reduce or eliminate the valuation allowance. They would like to conduct some research on the accounting for its valuation allowance.
Provide codification reference to your response.
Briefly explain to Kleckner management the importance of future taxable income as it relates ti valuation allowance for deferred tax assets.