Indicating appropriate income tax allocation

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Reference no: EM139652

Texaco Inc. has each of the following items on its balance sheet at December 31, 2011:

Current asset: prepaid expenses $50,000
Non-current assets: investment in ABC Company * 200,000
Current liabilities: warranty liabilities 100,000
Non-current liabilities: post-retirement liabilities other than pension 500,000

- Texaco Inc owns 40% of the ABC stocks accounted for the equity method. The original cost for this investment was 160,000. The $40,000 represents its share of income over dividend received since acquisition.

- The prepaid expenses have already been deducted for tax purposes; none of the other items have yet been deducted. The current and future income tax rate is 35 percent.

Required:

Prepare a memo to Texaco Inc’s chief accountant indicating the appropriate income tax allocation required for the above items, including the appropriate balance sheet presentation

Reference no: EM139652

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