Delta Catfish Company has taken a position in its tax return to claim a tax credit of $150 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not," based on its technical merits. Delta has developed the probability table shown below of all possible material outcomes: Probability Table ($ in millions) Amount of the tax benefit that management expects to receive Percentage likelihood that the tax benefit will be sustained at this level Delta's taxable income is $652 million for the year. Its effective tax rate is 25%. The tax credit would be a direct reduction in current taxes payable. $ 150 $ 150 $ 148 $ 136 10% 20% 25% 20% 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. $ 134 25%
Delta Catfish Company has taken a position in its tax return to claim a tax credit of $150 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not," based on its technical merits. Delta has developed the probability table shown below of all possible material outcomes: Probability Table ($ in millions) Amount of the tax benefit that management expects to receive Percentage likelihood that the tax benefit will be sustained at this level Delta's taxable income is $652 million for the year. Its effective tax rate is 25%. The tax credit would be a direct reduction in current taxes payable. $ 150 $ 150 $ 148 $ 136 10% 20% 25% 20% 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. $ 134 25%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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E7
Transcribed Image Text:Delta Catfish Company has taken a position in its tax return to claim a tax credit of $150 million (direct reduction in taxes payable) and
has determined that its sustainability is "more likely than not," based on its technical merits. Delta has developed the probability table
shown below of all possible material outcomes:
Probability Table ($ in millions)
Amount of the tax benefit that management expects to receive
Percentage likelihood that the tax benefit will be sustained at this level
Delta's taxable income is $652 million for the year. Its effective tax rate is 25%. The tax credit would be a direct reduction in current
taxes payable.
$ 158
our answers in the tabs below.
10%
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.
$ 150 $ 148
20%
25%
$ 136
203
$ 134
25%
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