Cavan Company prepared the following reconciliation between book income and taxable income for the current year
Pretax accounting $ 1,000,000
Taxable income (600,000)
Difference $ 400,000
Differences:
Interest on municipal income $ 100,000
Lower financial depreciation 300,000
Total $ 400,000
Cavan’s effective 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:
a. $ 120,000
b. $ 80,000
c. $ 100,000
d. $ 90,000