Case 09-9 Bricks & Mortar
Background
Bricks & Mortar Co. (The Company) an SEC registrant, is a manufacturer of construction equipment. The
Company has been in business for more than 50 years and operating profitably for the past 25 years. In
addition, the company has an applicable tax rate of 40% and no unused tax loss or credit carryforwards.
The Company’s fiscal year ends on December 31.
Relevant Issue
This case provides an opportunity to use accounting authority to account for the two issues in the
case. Under issue 1 we must determine the adjustment required to the Company’s preliminary 2009
financial statements to comply with ASC 740-10 by completing the table that was provided and justify
our
…show more content…
Issue 1 facts: As a result of implementing a certain tax strategy, the Company has included a $100
deduction in its draft tax return, resulting in a $40 reduction to taxes payable. There is uncertainty over
whether the tax strategy is sustainable under the tax law and therefore over whether the additional
$100 is deductible for tax purposes.
Management thinks that there is a 40% chance that the tax position would be sustained if taken to
the court of last resort. However, on the basis of its past experience in negotiating settlements with
the taxing authority, management believes that if it were to negotiate a settlement with the taxing
authority rather than take the dispute to court, it would have an 80% cumulative probability of realizing
at least $40 of benefit, 40% chance of realizing $20, 30% chance of realizing $10, and only 20% chance
of realizing no benefit. The sustainability of this tax position does not affect the tax bases of the
Company’s assets or liabilities.
Issue 1 facts, One year later:
We assume the same facts as issue 1 facts but one year has pasted and the Company is preparing its
financial statements for the year ended December 31, 2010.
they have proposed when it comes to the usage of taxes, as a way to alleviate the insurmountable
Revenue generated through tax receipts ideally should exceed annual costs on various government operations. Moreover, the economic considerations involving amendment of Internal Revenue Codes for various depreciation deductions for purchase of business property and research/development deductions credits1. The second consideration, referred to, as social consideration give tax benefits to the employers encouraging health insurance and deduction for charitable contributions by employees as well as private companies. The equity considerations enable individuals or corporations to avoid the effect of double taxation on their taxable income. This could be necessarily ensured by deducting state and local taxes from Gross Income. The credit or deduction for certain foreign taxes and deductions for dividend received by corporations to avoid triple taxation. The
(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29
Current and historical Financial Statements (Income Statement (I/S), Balance Sheet (B/S) and Statement of Cash Flows) from the three most current years for the firm
This has helped wipe out the unemployment challenge in the economy, the increased investment activities are boosting the economic growth and development which are critical factors for consideration in encouraging the negatively geared tax regime.
hashed out by an arbitration board instead of through a lawsuit. Robert Meade who is the
All the tax-related matters should be handled with utmost sincerity and carefulness. The government should take strict action to it and stick in the favor of citizens of the country who are honestly paying high taxes. In any way, the public should not feel cheated and disappointed.
The main purpose of tax research is to find the solutions to any tax problems that a client may have. The process of tax research is similar to that of coventional legal research. The researcher must evaluate the usefulness and apply the results of the research to a particular situation. There are two easily identifiable essential tax research skills. The first involves using certain mechanical methods that are used to identify and locate the tax authorities that will aid in solving a problem. The second skill involves a blend of reasoning and creativity. This research skill is more difficult to understand. Creativity is needed in order to explore the important relationships within the issues at hand and to find an adequate solution. There are times when no legal authority exists for the problem. If this happens, the individual conducting tax research must combine non-related facts, ideas, and legal authority to arrive at a truly innovative conclusion. The individual conducting the tax research shows that there is a difference between success and failure in the research process that is conducted. The process of using methodology is the key to successful tax research.
In order to combat recent budget shortfalls, legislators may feel that the status quo has failed the state and opt to raise the corporate tax rate in order to increase revenue collections and support the state budget. Raising the corporate tax rate would increase revenue collections from businesses that opt to continue operating in the state, helping cover shortfalls in the state budget and allow for additional government spending to reverse recent funding cuts to public programs. Raising the corporate tax rate would require minor restructuring of the Department of Revenue in order to accommodate the additional revenue inflows and management of the additional tax rate; however, this modification would still be administratively feasible as long as the restructuring does not change the overall operation of the department.
Accounting Standard AASB 112 (Income Taxes) prescribe the accounting treatment for income taxes. As stated by Leo, Hoggett, & Sweeting (2012), transactions undertaken by an entity and other events affecting the entity have two separate effects, which are current and future tax consequences. This is because accrual principal is
Recently we have seen Organisation for Economic Cooperation and Development (OECD) come up with reforms in the international tax rules called the Base Erosion and Profit Shifting (BEPS). Multinational firms use the double tax avoidance and transfer pricing routes to avoid taxes. India has been trying to limit the benefit such entities gain by signing treaties with countries like Singapore and entering into negotiations with countries like Mauritius, which are considered as tax heaven. Now OECD is planning to come up with multilateral conventions aimed at preventing treaty abuse. Currently revenue losses from BEPS are conservatively estimated at $100-$240 billion, which is roughly 4-10% of the global corporate income tax (CIT).
According to blue book (year), claimed that the taxation is the charges that the government
While the third fico government decreased the income tax of the corporate from 22% to 21% which will promote the investors (SGI, 2017)
* Detraction from a neutral application of tax to competing products is witnessed. The effective tax rate varies from product to product depending on the magnitude of the hidden tax on inputs used in their production and distribution.