Question

On December 31, Year 1, a publicly traded entity identified a tax position that will result in a $100,000 tax benefit that qualifies for measurement and should be recognized. The entity has considered the amounts and possible outcomes of the position being sustained upon examination as follows:Possible individual cumulative estimated probability of probability of outcome occurring occurring$100,000 20% 20%$30,000 35% 55%$10,000 45% 100% 100%What amount should be recognized as the tax benefit as of december 31, year 1?a.$0b.$10,000c.$30,000d.$100,000

Answer 1

Answer:

The correct answer is $30,000

Explanation:

If we refer back to the question asked, we can see that the tax positions that are announced  are uncertain hence the entity cumulatively attains a 55% chance of receiving at least a $30,000 tax benefit and therefore, it can be recognized for the amount that has a cumulative likelihood of being upheld at over 50%.

Consequentially, $30,000 is the appropriate amount to recognize.

However, to further clarify the case, we can also say that in a situation where the  50% threshold is met at $30,000 the firm can also agree to recognize the 30,000 tax benefit .

Answer 2

Answer:

C $30,000

Explanation:

. A $30,000 result has a 35 percent chance of occurring, but the entity cumulatively has a 55 percent chance of receiving at least a $30,000 tax benefit. As a result, $30,000 is the appropriate amount to recognize.