Palmer Company Owns a 25% Interest in Sad,Incorporated,a Domestic Company

question 43

Multiple Choice

Palmer Company owns a 25% interest in Sad,Incorporated,a domestic company.Sad had net income of $60,000 and paid dividends of $20,000.Palmer's tax rate is 35%.For simplicity,assume that Sad's undistributed earnings are Palmer's only temporary timing difference.Assume Sad qualifies for the 80% dividend received deduction.Which of the following statements is correct?

• A)The current tax liability is $700.
• B)The current tax liability is $1,050.
• C)Under GAAP,Palmer provides for income taxes on Sad's undistributed earnings with a credit to deferred tax liability of $700.
• D)Under GAAP,Palmer provides for income taxes on Sad's undistributed earnings with a credit to deferred tax liability of $1,050.

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Definitions:

Cash Refunds

Payments returned to purchasers in cash, typically due to returns, overpayments, or as a reward for loyalty or incentives.

Cash Receipts

The total amount of cash collected by a business from all sources during a given period.

Bank Deposits

Funds that individuals or entities place into a banking institution's account for safekeeping, which can include savings, checking, and time deposits.

Cash Account

An account that records all transactions involving cash inflows and outflows for a company.