McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 19

As of the beginning of the year, Gratiot Company recorded a valuation allowance of $200,000 against its deferred tax assets of $1,000,000.The valuation allowance relates to a net operating loss carryover from the prior year.During the year, management concludes that the valuation allowance is no longer necessary because it forecasts sufficient taxable income to absorb the NOL carryover.What is the impact of management's reversal of the valuation allowance on the company's effective tax rate?
a.Increases the ETR
b.Decreases the ETR
c.No impact on the ETR