DeferredTax Equity Method

DeferredTax Equity Method - $1,280,000 Future Taxable X 35%...

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Deferred Tax Effects of Equity Method Items: (Exercise beginning on Page 18) Investment in Lawson Corp. (40%) GAAP F/S Investment in Lawson Corp. TAX RETURN  1/2 2011 Original Cost 20,800,000 1/2 2011 Original Cost 20,800,000 12/31 2011 Equity in Net Earnings 19,200,000 12/31 2011 Equity in OCI 1,280,000   Dividends Received 14,400,000 12/3 1 Differential  Amortization 12/3 1 Intra-Entity Profit in EI 540,000 12/3 1 41,280,000 16,040,000 12/31 2011 25,240,000    Assume a 35% Effective Tax Rate. Undistributed Earnings of Investee Permanent Difference Future Taxable $19,200,000 - $14,400,000 = $4,800,000 X 20% (1 -80% DRD) = $960,000 X 35% = ($336,000) Equity in OCI Not  Taxable until Realized
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Unformatted text preview: $1,280,000 Future Taxable X 35% = ($448,000) Amortized Price Differential Not Deductible until Investment Sold ($1,100,000) Future Deductible X 35% = $385,000 Deferred Gross Profit in EI Deductible when Inventory Sold ($540,000 ) Future Deductible X 35% = $189,000 Net Differences $4,440,000 Net Deferred Tax (Liability) Asset $(210,000 ) Tax Return Basis 20,800,000 GAAP F/S $25,240,000 Net Differences $4,440,000 = $25,240,000 - $20,800,000 80% DRD on Undistributed Earnings (3,840,000 ) = $4,800,000 X 80% Net Future Taxable $600,000 X 35% = Net Deferred Tax Liability $210,000...
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DeferredTax Equity Method - $1,280,000 Future Taxable X 35%...

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