Reference no: EM132728031

In RadioShack's 2013 annual report, the company reported deferred tax assets of $259.3 million, offset by a valuation allowance of $228.8 million. Disclosure note 10 reported, in part:

• "We had deferred tax assets associated with our federal net operating losses, which will expire in 2033, of $132 million as of December 31, 2013. ...
• We continue to provide a valuation allowance against all of our U.S. federal and state deferred tax assets in 2013. ...
• We considered all available positive and negative evidence in evaluating whether these deferred tax assets were more likely than not to be realized. The significant negative evidence of our losses generated before income taxes in 2012 and the unfavorable shift in our business could not be overcome by considering other sources of taxable income, which included the reversal of taxable temporary differences and tax-planning strategies."

Discuss the following questions:

Problem 1. As a potential investor, what significance would you place on the existence of operating loss carryforwards?

Problem 2. What might contribute to RadioShack's need to record a valuation allowance?