Question

1 A Schedule UTP is required when a corporation:

a.Increases its deferred tax liability account by more than $10 million for the tax year.

b.Records a reserve against its Federal income tax expense.

c.Both "Increases its deferred tax liability account by more than $10 million for the tax year" and "Records a reserve against its Federal income tax expense".

d.Neither "Increases its deferred tax liability account by more than $10 million for the tax year" nor "Records a reserve against its Federal income tax expense".

2 Income tax information can be found in an entity's GAAP financial statements in the:

a.Income statement (e.g., the deferred tax expense).

b.Balance sheet (e.g., the deferred tax liability balance).

c.Both "Balance sheet (e.g., the deferred tax liability balance)" and "Income statement (e.g., the deferred tax expense)".

d.Neither "Balance sheet (e.g., the deferred tax liability balance)" nor "Income statement (e.g., the deferred tax expense)".

Answer 1

1. The correct choice is B. - Schedule UTP is required when a corporation records a reserve against its federal income tax expense AND have assets that equal or exceed $10 million.

Other options are incorrect because deferred tax liability is a liability and assets should be more than $10 million.

Refer below notes for detailed explanation:  

Reporting Uncertain Tax Positions on Schedule UTP

Tax positions to be reported.

Schedule UTP requires the reporting of each U.S. federal income tax position taken by an applicable corporation on its U.S. federal income tax return for which two conditions are satisfied.

1. The corporation has taken a tax position on its U.S. federal income tax return for the current tax year or for a prior tax year.

2. Either the corporation or a related party has recorded a reserve with respect to that tax position for U.S. federal income tax in audited financial statements, or the corporation or related party did not record a reserve for that tax position because the corporation expects to litigate the position.

2. The correct choice is C. - Reason - The income tax expense is reported as a line item in the corporate income statement, while any liability for unpaid income taxes is reported in the income tax payable line item on the balance sheet.