Delta Catfish Company has taken a position in its tax return toclaim a tax credit of $15 million (direct reduction in taxespayable) and has determined that its sustainability is “more likelythan not,” based on its technical merits. Delta has developed theprobability table shown below of all possible materialoutcomes:
| Probability Table ($ in millions) | | | | | | | | | | | | | | | |
| Amount of the tax benefit that management expects toreceive | $ | 15 | | | $ | 12.0 | | | $ | 9.0 | | | $ | 6.0 | | | $ | 3.0 | | |
| Percentage likelihood that the tax benefit will be sustained atthis level | | 10 | % | | | 20 | % | | | 25 | % | | | 20 | % | | | 25 | % | |
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Delta’s taxable income is $90 million for the year. Itseffective tax rate is 40%. The tax credit would be a directreduction in current taxes payable.
Required:
1. At what amount would Delta measure the taxbenefit in its income statement?
2. Prepare the appropriate journal entry for Deltato record its income taxes for the year.
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