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Porpoise acquires 100% of Sunfish in a tax-free business combination. The applicable income tax rate is...

Porpoise acquires 100% of Sunfish in a tax-free business combination. The applicable income tax rate is 30%. Based on the following information about the assets and liabilities of Sunfish, what amount should Porpoise record as a deferred tax balance for this acquisition for purposes of consolidation on the date of acquisition? Enter a minus sign to denote a credit (e.g.-200).

Old book basis Old tax basis Fair value
Cash $200,000 $200,000 $200,000
Equipment, net of depreciation 1,000,000 500,000 750,000
Patents 0 0 3,245,961
Accounts payable (300,000) (300,000) (300,000)
Deferred income taxes payable (150,000) NA ?
Notes payable (200,000) (200,000) (230,000)

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Expert Solution

Old book basis Old tax basis Fair value Temporary difference
Cash                  200,000            200,000             200,000                  -  
Equipment, net of depreciation               1,000,000            500,000             750,000      (250,000) DTL
Patents                             -                         -            3,245,961 (3,245,961) DTL
Accounts payable                (300,000)           (300,000)            (300,000)
Deferred income taxes payable                (150,000) NA ?
Notes payable                (200,000)           (200,000)            (230,000)              30,000 DTA
Net taxable temporary difference (3,465,961)
DTL @30%    1,039,788 3465961*30%
deferred tax balance    1,039,788

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