5,500 3,000 1,500 In its first year of operations, Aviator Corp. took a deductio

Question

5,500

3,000

1,500

In its first year of operations, Aviator Corp. took a deduction of $20,000 on its tax return. Its effective tax rate was 35%, resulting in a tax benefit of $7,000. Aviator believes that it is more likely than not that this deduction will be sustained based on its technical merits. However, Aviator prefers not to litigate the matter and would accept a settlement offer. Aviator has considered the amounts and probabilities of the possible estimated outcomes as follows: Possible Estimate Outcome Individual Probability of Occurring % Cumulative Probability of Occurring $7,000 35 35

5,500

25 60

3,000

25 85

1,500

15 100 What is the amount of tax benefit Aviator Corp. should recognize in its financial statements? A. $7,000 B. $1,500 C. $5,500 D. $3,000

Explanation / Answer

Ans : C

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