A company has $100 of NOLs on its balance sheet (as a DTA). This year it earns $200 PTI and uses the full NOL balance. Walk through the three statements (40% tax rate).

Answer

IS: Apply the $100 NOL against $200 PTI → taxable income = $100 → cash taxes paid = $40. Book PTI is still $200 with full $80 book tax expense ($200 × 40%), so NI = $120.