1. Harris Company uses the equity method to account for its 40% investment in Richardson Company common stock. Richardsons net income was $160,000; dividends paid were $85,000. Harris was able to take a 65% dividend exclusion on its tax return. The tax rate is 20%. How much is the deferred tax liability?

1. ($160,000 -$85,000) x .40 x .35
2. ($160,000 - $85,000) x .40 x .20
3. ($160,000 - $85,000) x .40 x .35 x .20
4. ($160,000 - $85,000) x .40 x .65