Accounting for UTP

Question 1

What is required in order to recognize tax savings on the financial statements

Answer 1

they amount of tax savings recognized must be more likely than not to be upheld after investigation by the tax authority

Question 2

Explain how ASC 740 relates uses the matching principle with UTPs

Answer 2

matches expected tax liability today, or in the future, with the GAAP recorded income

Question 3

What does the liability for uncertain tax position relate to

Answer 3

the difference for the tax position taken on the current return and what the conjectured (expected) ultimate tax effect will be

Question 4

What is the 2 step process for determining whether/how much tax benefit should be recorded for GAAP

Answer 4

1. more likely than not (>50%)
2. amount to record = the largest amount of benefit, determined on a cumulative basis, that is more likely than not to be recognized upon settlement

Question 5

What is the journal entry to book a liability for UTPs

Answer 5

Current Tax Expense xxxx

Liability - UTP xxxx

Question 6

How do temporary differences due to UTPs affect the book tax expense

Answer 6

They don’t. Not in total. They only change the timing of when these taxes will be paid. They change the mix of current vs deferred taxes paid