Prepare the journal entry needed to record the current year

Reference no: EM131894879

Problem

Keegan Sound Systems, Inc. took an aggressive tax position on its current year's tax return. The taxing jurisdictions have challenged the deduction claimed in prior years upon examination of returns of other firms in the industry. Keegan reported $700,000 in taxable income after the $470,000 deduction in question. In other words, the company earned $1,170,000 in taxable income before the $470,000 deduction. Keegan is subject to a 40% tax rate and has no book-tax differences.

The company will assess the following probabilities corresponding to possible tax deduction outcomes in order to measure the potential tax benefit:

Possible Estimated Outcome (i.e., amount allowed as a tax deduction)	Individual Probability of Occurring (%)
$470,000	5%
$370,000	30%
$290,000	35%
$150,000	10%
$120,000	20%

Prepare the journal entry needed to record the current year's tax provision and the liability for the uncertain tax position.

Reference no: EM131894879

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