Tecktroniks Company Reported in Its Annual Report Software Refinement Expenses

question 40

Multiple Choice

Tecktroniks Company reported in its annual report software refinement expenses of $12 million, $15 million, and $18 million for fiscal years 2005, 2006, and 2007, respectively. At the end of fiscal 2007, it had total assets of $140 million. Net income was $20 million for fiscal 2007, and it had a marginal tax rate of 35%.
-If the software refinement had been capitalized and amortized over a three-year period beginning in the year the cost was incurred, but was expensed for tax purposes, the deferred tax position at the end of fiscal 2005 would have been:

• A)a deferred tax credit of $2.8 million.
• B)a deferred tax credit of $3.5 million.
• C)a deferred tax credit of $5.2 million.
• D)a deferred tax debit of $4 million.

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