Question

E 16-29 Tax credit; uncertainty regarding sustainability LO16-9 L Delta Catfish Company has taken a position in its tax return to claim a tax credit of $10 million (direct reduction in taxes payable) and has determined that its sustainability is more likely than not, based on its technical merits. Delta has developed the probability table shown below of all possible material outcomes (S in millions) Probability Table Amount of the tax benefit that management expects to receive Percentage likelihood that the tax benefit will be sustained at this level $8 $6 $4 $2 10% 20% 25% 20% 25% Deltas taxable income is $85 million for the year. Its effective tax rate is 40%. The tax credit would be a direct reduction in current taxes payable Required: 1. At what amount would Delta measure the tax benefit in its income statement? 2. Prepare the appropriate journal entry for Delta to record its income taxes for the year

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Answer (1)

Taxable Income $    85.00 $    85.00 $    85.00 $    85.00 $    85.00 (A)
Tax @ 40% $    34.00 $    34.00 $    34.00 $    34.00 $    34.00 (B)=(A*40%)
Less : Tax Benefit (Note-1) $    (1.00) $    (1.60) $    (1.50) $    (0.80) $    (0.50) (C)
Tax Payable $    33.00 $    32.40 $    32.50 $    33.20 $    33.50 (D)=(B-C)

Hence, It will be tax benefit at $8.00 that management expects

Note -1
Amount of the tax benefit that management expects to receive $    10.00 $       8.00 $       6.00 $       4.00 $       2.00
Percentage likelihood that the tax benefit will be sustained at this level 10% 20% 25% 20% 25%
Percentage likelihood that the tax benefit will be sustained at this level $       1.00 $       1.60 $       1.50 $       0.80 $       0.50

Answer (2)

  

For making provision
Profit & Loss A/c Debit $    32.40
Income Tax Payable A/c Credit $    32.40
Add a comment
Know the answer?
Add Answer to:
E 16-29 Tax credit; uncertainty regarding sustainability LO16-9 L Delta Catfish Company has taken a position...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Exercise 16-29 Tax credit; uncertainty regarding sustainability (LO16-9) Delta Catfish Company has taken a position in...

    Exercise 16-29 Tax credit; uncertainty regarding sustainability (LO16-9) Delta Catfish Company has taken a position in its tax return to claim a tax credit of $28 million (direct reduction in taxes payable) and has determined that its sustainability is more likely than not," based on its technical merits. Delta has developed the probability table shown below of all possible material outcomes. Probability Table ($ in millions) Amount of the tax benefit that management expects to receive Percentage likelihood that the...

  • Delta Catfish Company has taken a position in its tax return to claim a tax credit...

    Delta Catfish Company has taken a position in its tax return to claim a tax credit of $10 million (direct reduction in taxes payable) and has determined that its sustainability is “more likely than not,” based on its technical merits. Delta has developed the probability table shown below of all possible material outcomes: Probability Table ($ in millions) Amount of the tax benefit that management expects to receive $ 10 $ 8 $ 6 $ 4 $ 2 Percentage likelihood...

  • Delta Catfish Company has taken a position in its tax return to claim a tax credit of $26 million...

    Delta Catfish Company has taken a position in its tax return to claim a tax credit of $26 million (direct reduction in taxes payable) and has determined that its sustainability is “more likely than not,” based on its technical merits. Delta has developed the probability table shown below of all possible material outcomes: Probability Table ($ in millions) Amount of the tax benefit that management expects to receive $ 26 $ 20.8 $ 15.6 $ 10.4 $ 5.2 Percentage likelihood...

  • Check my work Delta Catfish Company has taken a position in its tax return to claim...

    Check my work Delta Catfish Company has taken a position in its tax return to claim a tax credit of $30 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not," based on its technical merits. Delta has developed the probability table shown below of all possible material outcomes: $30 $24.0 $18.0 $12.0 10& 20& 25% 208 Delta's taxable income is $105 million for the year. Its effective tax rate is 40%. The...

  • P 16-13 Multiple differences; uncertain tax position CL016–2, 2016–5, Q.1016–9 * Tru Developers, Inc., sells plots...

    P 16-13 Multiple differences; uncertain tax position CL016–2, 2016–5, Q.1016–9 * Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru took the position that it could recognize the income for tax purposes when the installments are collected. Income that Tru recognized for financial reporting purposes in 2021 for plots in this category was $60 million. The...

  • Chapter 16-Problem 10 Tru Developers, Inc. sells plots of land for industrial development. Tru recognizes income...

    Chapter 16-Problem 10 Tru Developers, Inc. sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru took the position that it could recognize the income for tax purposes when the installments are collected. Income that Tru recognized for financial reporting purposes in 2018 for plots in this category was $60 million. The company expected to collect 60% of each sale...

  • Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting...

    Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru took the position that it could recognize the income for tax purposes when the installments are collected. Income that Tru recognized for financial reporting purposes in 2021 for plots in this category was $60 million. The company expected to collect 60% of each sale in 2022 and...

  • 14 Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial...

    14 Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru took the position that it could recognize the income for tax purposes when the installments are collected. Income that Tru recognized for financial reporting purposes in 2021 for plots in this category was $70 million. The company expected to collect 60% of each sale in 2022...

  • Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting...

    Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru took the position that it could recognize the income for tax purposes when the installments are collected. Income that Tru recognized for financial reporting purposes in 2021 for plots in this category was $70 million. The company expected to collect 60% of each sale in 2022 and...

  • To complete the assignment, you will be using financial statement excerpts from the 2018 10Ks of...

    To complete the assignment, you will be using financial statement excerpts from the 2018 10Ks of Delta, Honeywell, and Ford Motor Company. I have extracted the portions of the 10K you will require for the assignment and posted the information 6. What is the funded status of all of Honeywell’s pension benefit plans in 2018 (US and Non US)? What amount of asset or liability should Honeywell report on its 2018 balance sheet? Excerpt from Ford Motor Company 2018 10K...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT