Information for Hobson Corp. for the current year ($ in millions): Income from c
ID: 2486350 • Letter: I
Question
Information for Hobson Corp. for the current year ($ in millions):
Income from continuing operations before tax $150
Loss on discontinued operation (pretax) 30
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 25
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?
A tax receivable of $12 million in the balance sheet.
A tax benefit of $12 million to net against the $30 million pretax loss.
A deferred tax asset of $12 million in the balance sheet.
None of these answer choices are correct.
Explanation / Answer
A tax benefit of $12 million to net against the $30 million pretax loss.