3rd Edition

ISBN: 9780136946601

Author: GORDON

Publisher: PEARSON

Concept explainers

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…

Videos

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.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 17, Problem 17.20E

Chapter 17, Problem 17.22E

Students have asked these similar questions

How much will company's net income increase?

Sufficient excess operating capacity

Compute the overhead rate using the traditional approach

Chapter 17 Solutions

INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT

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...

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

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

Concept explainers

Videos

Want to see the full answer?

Chapter 17 Solutions