LaceCo has adopted certain aggressive policies concerning its transfer pricing procedures. The entity estimates that it will
Question:
LaceCo has adopted certain aggressive policies concerning its transfer pricing procedures. The entity estimates that it will reduce its Federal income tax liability by $400,000 as a result of these strategies, but that the IRS is likely to challenge the policies in an audit.
LaceCo estimates that the tax benefit may be reduced after an IRS audit and related negotiations (amounts as indicated with related probabilities); LaceCo constructs a table of these probabilities and results.
LaceCo recorded a book tax provision of $600,000, including the $400,000 tax benefit from this tax uncertainty.
a. Determine the amount that LaceCo should record for the tax benefit from this item, under GAAP rules and ASC 740-10.
b. Construct the journal entry that LaceCo should record for these items.
South western Federal Taxation 2017 Corporations, Partnerships, Estates and Trusts
ISBN: 9781305874336
40th edition
Authors: William H. Hoffman, William A. Raabe , David M. Maloney, James C. Young