Texaco Inc. has each of the subsequent 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 investment was 160,000. The $40,000 shows its share of income over dividend received since acquisition.
The prepaid expenses have previously been deducted for tax purposes; none of the other items have yet been deducted. The future and current income tax rate is 35 percent.
Required:
Create a memo to Texaco Inc's chief accountant showing the appropriate income tax allocation required for the above items, adding the appropriate balance sheet presentation