Question

Tara Corporation uses the equity method of accounting for its 40% investment in Flax’s common stock. During 2014, Flax reported earnings of $750,000 and paid dividends of $250,000. Assume that:
• All undistributed earnings of Flax will be distributed as dividends in future periods.
• The dividends received from Flax are eligible for the 80% dividends received deduction.
• No other temporary differences exist.
• Tara’s 2014 income tax rate is 30%.
• Enacted income tax rates after 2014 are 25%.

Required:
What would be the increase in the deferred tax liability during 2014 from the preceding transactions?



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  • CreatedSeptember 10, 2014
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