Delta Catfish Company has taken a position in its tax return to claim a tax cred
ID: 2550959 • Letter: D
Question
Delta Catfish Company has taken a position in its tax return to claim a tax credit of $20 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: Amount of the tax benefit that management expects to receive Percentage likelihood that the tax benefit will be sustained at this level 20 $16. $12. $8.0 $4. 10% 20% 25% 20% 25% Delta's taxable income is $95 million for the year its effective tax rate is 40% The tax credit would be a taxes payable direct reduction in current 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 At what amount would Delta measure the tax benefit in its income statement? (Enter your answer in millions and round your answer to 1 decimal places.) Tax benefit million Required 2Explanation / Answer
Probability Table ( $ Million) Journal Entry ( in Million) Amount Expected $20.00 $16.00 $12.00 $8.00 $4.00 Account Desription , Title Debit Credit % of Liklihood (in %) 10% 20% 25% 20% 25% Income Tax Expense $38.00 Cumm Probability (in %) 10% 30% 55% 75% 100% Income Tax Credit $3.00 Probable Excpected Amount $2.00 $4.80 $6.60 $6.00 $4.00 Income Tax Payable $35.00 (Amount Expected* Cumm Prob.) Working Note for Computation of Income Tax Expense Highest estimated benefit amount at Highest Probability will be $6.6, So, it's the tax benefit they can claim Taxable Income $95 Income Tax Expense @40% $38.00 Estimated Benefit $6.60 Income Tax Benfit @40% $3
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