3rd Edition

ISBN: 9780136912644

Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella

Publisher: Pearson Education (US)

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Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue autho…

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Textbook Question

Chapter 17, Problem 17.21E

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.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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Chapter 17, Problem 17.20E

Chapter 17, Problem 17.22E

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Nestle Resources acquired land on July 15, 2019, at a cost of $875,000. The company estimated that a total of 45,000 tons of mineral was available for mining. After extracting all the natural resources, the company will be required to restore the property to its original condition due to environmental regulations. It estimates the fair value of this restoration obligation at $95,000. The company expects to sell the property afterwards for $115,000. Before beginning mining operations, the company incurred developmental costs of $180,000. During 2019, the company extracted 20,000 tons of resources. It sold 15,000 tons. Compute the following information for 2019: a) Per unit mineral cost b) Total material cost of December 31, 2019, inventory c) Total material cost in cost of goods sold at December 31, 2019

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Chapter 17 Solutions

Intermediate Accounting

Ch. 17 - Prob. 17.1Q Ch. 17 - When will income tax expense and income taxes...Ch. 17 - Will permanent differences cause the effective tax...Ch. 17 - When do permanent differences arise?Ch. 17 - How are deferred tax assets and deferred tax...Ch. 17 - Prob. 17.6Q Ch. 17 - Prob. 17.7Q Ch. 17 - Prob. 17.8Q Ch. 17 - Prob. 17.9Q Ch. 17 - How does a firm determine the need for a valuation...

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Solution Summary: The author explains that income excluded from current tax return amounted to 2,500,000. Income before exclusion was 6,000,000.

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