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Problem 3-7 (LO. 8) RoofCo reports total book income before taxes of $32,000,000 and a total tax expense of $8,000,000. FloorCo reports book income
Problem 3-7 (LO. 8) RoofCo reports total book income before taxes of $32,000,000 and a total tax expense of $8,000,000. FloorCo reports book income before taxes of $48,000,000 and a total tax expense of $12,000,000. The companies' breakdown between current and deferred tax expense (benefit) is as follows: RoofCo Current tax expense $10,000,000 FloorCo $13,000,000 Deferred tax benefit Total tax expense (2,000,000) $8,000,000 (1,000,000) $12,000,000 RoofCo's deferred tax benefit is created by the expected future use of a capital loss carryforward. FloorCo's deferred tax benefit is created by the expected future use of a minimum tax credit (AMT) carryforward. Compute the companies' effective tax rates. RoofCo: 25 % FloorCo: 25 % Select either "True" or "False" to indicate whether the following statements are true or false regarding both companies' deferred tax benefits. a. It appears that both companies have created deferred tax assets in the current year that are expected to produce tax savings in the future. b. RoofCo's deferred tax benefit is created by a carryforward that depends on the nature of future income (generating a capital gain) and has a limited carryforward period. c. This credit is payable to FloorCo in the near future regardless of the amount or nature of its taxable income. True
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