Question

For each of the following research cases, search the FASB ASC database for information to address the issues. Copy and paste the FASB ASC paragraphs that support your responses. Then summarize briefly what your responses are, citing the paragraphs used to support your responses.

• FASB ASC 1-3 Accounting for the Investment Tax Credit

The accounting alternative treatments for the investment tax credit originally outlined in APB Opinions 2 and 4 are still considered GAAP. Find and cite the FASB ASC paragraphs and copy the relevant information.

Answer 1

FASB ASC 1-3 Accounting for the Investment Tax Credit

FASB ASC 1-3 Accounting for the Investment Tax Credit 23. investment tax credit 740-10-25-46 While it shall be considered preferable for the allowable investment credit to be reflected in net income over the productive life of acquired property (the deferral method), treating the credit as a reduction of federal income taxes of the year in which the credit arises (the flow-through method) is also acceptable. 740-10-47-27

28 Statement of Financial Position 45-27 the reflection of the allowable credit as a reduction in the net amount at which the acquired property is stated (either directly or by inclusion in an offsetting account) may be preferable in many cases. However, it is equally appropriate to treat the credit as deferred income, provided it is amortized over the productive life of the acquired property

Income Statement 45-28 It is preferable that the statement of income in the year in which the allowable investment credit arises should be affected only by the results which flow from the accounting for the credit set forth in paragraph 740-10-25-46. Nevertheless, reflection of income tax provisions, in the income statement, in the amount payable (that is, after deduction of the allowable investment credit) is appropriate provided that a corresponding charge is made to an appropriate cost or expense (for example, to the provision for depreciation) and the treatment is adequately disclosed in the financial statements of the first year of its adoption.

740-10-25-45 Anticipated Future Tax Credits In the separate financial statements of an entity that pays dividends subject to the tax credit to its shareholders, a deferred tax asset shall not be recognized for the tax benefits of future tax credits that will be realized when the previously taxed income is distributed; rather, those tax benefits shall be recognized as a reduction of income tax expense in the period that the tax credits are included in the entity's tax return.

740-10-50-20 Investment Tax Credit Recognition Policy 50-20 Paragraph 740-10-25-46 identifies the deferral method and the flow-through method as acceptable methods of accounting for investment tax credits. Whichever method of accounting for the investment credit is adopted, it is essential that full disclosure be made of the method followed and amounts involved, when material

Accounting for an Unused Investment Tax Credit—an interpretation of APB Opinions No. 2 and 4

This Interpretation concerns recognition of investment tax credits in computing financial statement provisions for income tax expense. An investment tax credit should be recognized to the extent that the credit would have been realized on the tax return if taxes payable had been based on pre-tax accounting income. Any remaining available investment tax credit should be recognized to the extent that existing net deferred tax credits would reverse during the investment tax credit carry forward period, subject to limitations. The credit should not be recognized simply because the enterprise believes that future realization of the benefit is assured beyond a reasonable doubt.

The Interpretation also addresses the accounting for investment tax credits existing in an acquired company at the time of a business combination accounted for by the purchase method. If those investment tax credits are subsequently realized on the tax return, goodwill should be reduced by an equivalent amount until it is reduced to zero. Any additional amounts realized should be applied to reduce specified noncurrent assets until they are reduced to zero. Any remaining amount realized should be recorded as a deferred credit and amortized to income over a period not to exceed 40 years.