cathyzq
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Posts: 29
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| Posted: 20 Jan 2011 at 13:49 | IP Logged
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This problem is from 2011 Wiley FAR review textbook,
Pg,463 No. 28.
Bart, Inc, a newly organized corporation, uses the equity
method of accounting for its 30% investment in Rex Co. 's
common stock. During 2010,Rex paid dividends of 300,000
and reported the earnings of 900,000. In addition
-The dividends receiver from Rex are eligible for the 80%
dividends received deductions.
-All the undistributed earnings of Rex will be
distributed in future years
-There are no other temporary difference.
-Bar's 2010 income tax rate is 30%
'-The enacted income tax rate after 2010 is 25%
In bart's december 31,2010 balance sheet, the deferred
income tax liability should be
a. 10,800
b. 9,000
c. 5,400
d. 4,500
The correct answer is b. I am confused about the
explanations. Why the difference between (900000*0.3-
300000*0.3) will be the Number to be multiplied by
0.2,not use 300,000(dividend)*0.3*0.25 directly.
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Topic: Deferred Tax Related to Bus Investment
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