Bart, Inc., a newly organized corporation, uses the equity
method of accounting for its 30% investment in Rex Co.’s common
stock. During year 1, Rex paid dividends of $300,000 and
reported earnings of $900,000. In addition
• The dividends received 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 differences.
• Bart’s year 1 income tax rate is 30%.
• The enacted income tax rate after year 1 is 25%.
In Bart’s December 31, year 1 balance sheet, the deferred income
tax liability should be