Acai Corporation Determined That $5,000,000 of Its R&D Credit on Its

question 92

Essay

Acai Corporation determined that $5,000,000 of its R&D credit on its current year tax return was uncertain. Acai determined that there was a 40 percent chance of the credit being sustained on audit. Management made the following assessment of the company's potential tax benefit from the R&D credit and its probability of occurring. $\begin{array}{c}\begin{array}{r}\text { Potential Estimated }\\\text { Benefit (000s) } \\\hline \$ 5,000,000 \\\mathbf{3,500 , 0 0 0} \\2,000,000 \\0\end{array}\begin{array}{c}\text { Individual Probability }\\\text { of Occurring }(\%) \\\hline 05 \\15 \\35 \\25\end{array}\begin{array}{c}\text { Cumulative Probability } \\\text { of Occurring } \\\hline 05 \\20 \\55 \\100\end{array}\end{array}$ Under ASC 740, what amount of the tax benefit related to the R&D credit can Acai recognize in calculating its income tax provision in the current year?

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Definitions:

Liabilities

Financial obligations or debts a company owes to others, such as loans, accounts payable, and mortgages.

Assets

Resources owned by a company that have economic value and are expected to provide future benefits.

Revenues

The total amount of money earned by a company from its normal business activities, typically from the sale of goods and services to customers.

Trial Balance

A financial worksheet where all ledger balances are totaled into debit and credit columns which balance equally.