Greening Company has net income before taxes of $3,000 and no temporary differences. It has taken two positions on its Year 1 tax return about which it is uncertain whether the amounts deducted will be allowed when reviewed by the IRS. Greenings tax rate is 30%. Position 1 is a deduction for $200, generating tax savings of $60, and position 2 is a deduction for $30, generating tax savings of $90. Greening has included the tax savings from these deductions in both income taxes payable and income tax expense, and has recorded those amounts based on its net income before taxes amount. Greening has consulted a tax attorney about both of these uncertain positions.

Position 1: The tax attorney believes that there is a 60% chance the deduction will be allowed when the return is audited. If the position is settled by negotiations with the taxing authority, the attorney believes that there is a 20% likelihood of sustaining the $60 tax savings, 25% likelihood of sustaining $50, 25% likelihood of $40, and a 20% likelihood of $20, and a 10% likelihood of $0.

Position 2: The tax attorney believes that there is a 40% chance the deduction will be allowed if the position is taken to court. He also believes that there is a 60% chance the taxing authority would negotiate a settlement. In such a settlement, there is a 10% chance of sustaining $50 tax savings, 30% chance of sustaining $30, 20% chance of sustaining $10, and a 40% chance of $0.

Requirements:

1. Prepare the journal entry that Greening made to record income taxes payable for Year 1.

2. For each position, determine whether the position meets the more-likely-than-not test

3. For each position, determine the amount of any required adjustment. Show all work.

4. Prepare the journal entry to record the adjustment, assuming income tax expense and taxes payable have already been recorded.