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Texaco Inc. has each of the following items on its balance sheet at December 31, 2011: Current asset: prepaid expenses $50,000 Non-current assets: investment in
Texaco Inc. has each of the following 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 this investment was 160,000. The $40,000 represents its share of income over dividend received since acquisition. The prepaid expenses have already been deducted for tax purposes; none of the other items have yet been deducted. The current and future income tax rate is 35 percent. Required: Prepare a memo to Texaco Incs chief accountant indicating the appropriate income tax allocation required for the above items, including the appropriate balance sheet presentation
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