At the end of the current year, Brothers company claims a $225,000 tax credit on its income tax return. Brothers is uncertain about whether the IRS will accept the credit. After some research it is determined that the IRS may not accept all of the tax credit. Brothers estimates the likelihood using the following probability distribution:
Dollar Amount of Tax Benefit that it Anticipates will be upheld
?
Probability that the Tax Position will be Upheld
Cumulative Probability that the Tax Position will be Upheld
$ 225,000
20%
35%
$ 150,000
55%
65%
$ 75,000
25%
100%
?
Required:For the current year determine:1) the amount Brothers will be able to recognize as a current tax benefit2) the amount that will be record as the unrecognized tax benefit.
What will be an ideal response?
| 1) The largest amount above the 50% probability threshold, i.e. $150,000 |
| 2) The $225,000 tax credit claimed on tax return less the $150,000 estimate to be upheld = $75,000 |
Business
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