Complete the “Permanently Reinvested Earnings” Surfing the Standards Case before making the judg-ments in this case. Mini Golf Corporation is a fully owned foreign subsidiary of Fun Parks, Inc.
Mini Golf operates in a foreign jurisdiction with a tax rate of 15%, whereas Fun Parks, Inc. is a U. S. corporation that faces a 35% tax rate. Mini Golf has earnings of $ 2,000,000 this year, and there are no book- tax differences. The firm is subject to taxation at 15% in its home country. When it eventually distributes the earnings back to Fun Parks ( which will not happen in the current year), it will have to pay the additional 20% tax ( the U. S. tax rate of 35% less the foreign rate of 15%).
Typically, Fun Parks ( a U. S. GAAP reporter) does not use the exception for recording its tax accrual found in FASB ASC 730- 30- 25- 17. Thus, it would typically record the tax expense in the current year at $ 700,000. However, this year it has decided to take advantage of the exception and only report tax expense of $ 300,000. If you were the auditor, what other pieces of information would you like to evaluate before signing off on the company’s tax accrual?