Assume that Detailed Diagnostics, Inc. makes a $900,000 capital investment and elects an immediate expense deduction for tax purposes. Management designated this treatment to be an uncertain tax position. The uncertainty of this tax position is whether the capital expenditure qualifies as eligible property for an immediate deduction. The equipment is capitalized for financial reporting purposes and is depreciated over a 10-year useful life using the straight-line basis with no residual value, resulting in depreciation expense of $90,000 per year.

Based on an analysis of prior tax cases, the most likely sustainable position would be to use MACRS depreciation for 5-year property resulting in a first-year depreciation expense of $180,000 (i.e., 20% x $900,000). The entity reports $1,980,000 of income before tax and depreciation (or taking any Section 179 deductions) and is subject to a 34% tax rate.

"As Filed" Amount of the Tax		Percentage Likelihood That
Benefit That Management		the Tax Position Will Be
Expects to Sustain		Sustained at This Level
$900,000		15	%
382,500		40
180,000		30
123,750		15

Requirement a. Prepare the journal entry to record the tax provision for the current year. (Record debits first, then credits. Exclude explanations from any journal entries.)

Account	Current year

Requirement b.

Detailed's

unrecognized tax benefits at the beginning of the year amounted to

$325,000.

Of this amount,

$26,000

was settled during the year. Based on this information, prepare the roll forward reconciliation for

Detailed's

unrecognized tax benefits. (If a box is not used in the table leave the box empty; do not select a label or enter a zero.)

UTB Roll Forward Schedule
Balance at beginning of year
Add:.
Less:
Balance at end of year