Problem 5

You have pre-tax book and taxable income of $100,000.

Your current and expected future tax rate is 35%.

You take a tax position when filing your tax return that you believe is not more likely than not to be sustained by a fully informed tax authority.

The specific position relates to a tax credit. This tax credit reduces the tax that you would otherwise have to pay by $20,000.

1. What is your effective tax rate, then make three seperate journal entries one to reflect the tax consequences above, one assuming the uncertain tax positon is subsequently sustained (i.e., accepted) by a tax authority, and one assuming the uncertain tax positon is subsequently not sustained by a tax authority at audit?