In Year 1, MB Inc. is subject to a 40% tax rate. For book purposes, it expenses $1,500 of expenditures. MB intends to deduct these expenditures on its Year 1 tax return despite tax law precedent that makes it less than 50% probable that the deduction will be sustained on its  technical merits. Instead, the best estimate is that the IRS will allow these expenses to be amortized straight line over a 15-year period. In Year 1 and each of the subsequent 14 years, $100 of amortization would be allowed.

1. In Year 1, determine which accounts MB would debit and credit and for how much in properly accounting for this uncertain tax position.
2. Prepare the journal entries that MB would make in Year 2 related to this uncertain tax position.

  • CreatedSeptember 10, 2014
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