Uncertain Tax Positions. Based on the information provided in E17-19, assume that Lewis Eagle Corporation reported the following income levels for both book and tax purposes for the following year.
Description | Amount |
Income before exclusion | $8,000,000 |
Tax exclusion | (3,000,000) |
Income before tax | $5,000,000 |
Assume that Lewis Eagle passed the more-likely-than-not test Based on an analysis of the estimated cumulative probabilities. Lewis Eagle should recognize a tax benefit of $1,950,000. Assuming a tax rate of 30%, prepare the
E17-19. Uncertain Tax Positions. Lewis Eagle Corporation concluded that it was able to exclude $2,500,000 in income from its current tax return Income before the exclusion is $6,000,000. There are no book-tax differences. This income is subject to a 30% tax rate. Based on its technical merits, Lewis Eagle determined that it is more likely than not that the exclusion would be sustained upon examination by tax auditors. The possible outcomes and their related probabilities follow.
Filed Amount of the Exclusion That Management Expects to Maintain | Likelihood That the Tax Position Will Be Sustained at This Level (%) |
$2,500,000 | 10% |
2,000,000 | 20 |
1,500,000 | 25 |
1,000,000 | 35 |
880,000 | 10 |
Determine the amount of tax benefit from the exclusion that Lewis Eagle should recognize in its tax provision for the current year and prepare the journal entry needed to record the tax provision for the current year.
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Intermediate Accounting (2nd Edition)
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