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Question: Mini Golf Corporation is a fully owned

Mini Golf Corporation is a fully owned foreign subsidiary of Fun Parks, Inc. Mini Golf operates in a foreign jurisdiction with a tax rate of 15% whereas Fun Parks, Inc. is a U.S. corporation that has a 35% tax rate. Mini Golf has earnings of $2,000,000 this year and there are no book-tax differences. The firm is subject to taxation at 15% in its home country. When Mini Golf eventually distributes the earnings back to Fun Parks (which will not happen in the current year), it will have to pay the additional 20% tax (the U.S. tax rate of 35% – the foreign rate of 15%).
1. What is your intuition as to how to handle this tax accrual? Specifically, for what amount should taxes payable be credited? For what amount should tax expense be debited? If these two numbers are not the same, what other account should be debited or credited and for how much? Why?
2. Read FASB ASC 740-30-25-3. Based upon this paragraph, what is the journal entry to record the tax provision in the current year?
3. Read FASB ASC 740-30-25-17. Are there any circumstances in which the company would not have to record the incremental tax expense and the deferred tax liability? If so, what would the journal entry be to record the tax provision in the current year?
4. Does the exception in (3) make sense to you? Please explain.
5. IFRS contains the same general rule that is included in U.S. GAAP in FASB ASC 740-30-25-3. IFRS also has an exception to this rule. Read International Accounting Standard 12, “Income Taxes,” paragraph 39. Is the exception under IFRS the same as the exception under U.S. GAAP? Explain.


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