Cavan Company prepared the following reconciliation between book income and taxable income for the current...
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Accounting
Cavan Company prepared the following reconciliation between book income and taxable income for the current year ended December 31, year 1.
Pretax accounting income
$1,000,000
Taxable income
(600,000)
Difference
$400,000
Book-tax differences:
Interest on municipal income
$100,000
Lower financial depreciation
300,000
Total
$400,000
Cavan's effective Federal and state income tax rate for year 1 is 30%. The depreciation difference will reverse equally over the next three years at enacted tax rates as follows.
Year
Tax Rate
Year 2
30%
Year 3
25%
Year 4
25%
In Cavan's year 1 income statement, the deferred portion of its provision for income taxes should be:
$120,000
$80,000
$100,000
$90,000
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