Brook Company has taken a position on its tax return to claim a tax credit of $30 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not" based on its technical merits. Brook's management has developed the probability table shown below of all possible material outcomes: Brook's taxable income is $300 million for the year, and its effective tax rate is 40%. The tax credit would be a direct reduction in current taxes payable.
Required:
1. At what amount would Brook measure the tax benefit in its income statement?
2. Prepare the appropriate journal entry for Brook to record its income taxes for the year.

Question

Brook Company has taken a position on its tax return to claim a tax credit of $30 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not" based on its technical merits. Brook's management has developed the probability table shown below of all possible material outcomes:  Brook's taxable income is $300 million for the year, and its effective tax rate is 40%. The tax credit would be a direct reduction in current taxes payable.
Required:
1. At what amount would Brook measure the tax benefit in its income statement?
2. Prepare the appropriate journal entry for Brook to record its income taxes for the year.

Quizplus · Accepted Answer

The Answer of Brook Company has taken a position on its tax return to claim a tax credit of $30 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not" based on its technical merits. Brook's management has developed the probability table shown below of all possible material outcomes:  Brook's taxable income is $300 million for the year, and its effective tax rate is 40%. The tax credit would be a direct reduction in current taxes payable.
Required:
1. At what amount would Brook measure the tax benefit in its income statement?
2. Prepare the appropriate journal entry for Brook to record its income taxes for the year.

Brook Company Has Taken a Position on Its Tax Return