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Information for Hobson Corp. for the current year ($ in millions): Income from continuing operations before tax $ 230 Loss on discontinued operation (pretax) 50
Information for Hobson Corp. for the current year ($ in millions):
Income from continuing operations before tax | $ | 230 | |
Loss on discontinued operation (pretax) | 50 | ||
Temporary differences (all related to operating income): | |||
Accrued warranty expense in excess of expense included in operating income | 10 | ||
Depreciation deducted on tax return in excess of depreciation expense | 15 | ||
Permanent differences (all related to operating income): | |||
Nondeductible portion of entertainment expense | 5 | ||
The applicable enacted tax rate for all periods is 40%. How should Hobson report tax on the discontinued operation?
Multiple Choice
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A deferred tax asset of $20 million in the balance sheet.
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A tax receivable of $20 million in the balance sheet.
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A tax benefit of $20 million to net against the $50 million pretax loss.
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None of these answer choices are correct.
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