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Cavan Company prepared the following reconciliation between book income and taxable income for the current...

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Accounting

Cavan Company prepared the following reconciliation between book income and taxable income for the current year ended December 31, year 1.

Pretax accounting income $1,000,000
Taxable income (600,000)
Difference $400,000
Book-tax differences:
Interest on municipal income $100,000
Lower financial depreciation 300,000
Total $400,000

Cavan's effective Federal and state income tax rate for year 1 is 30%. The depreciation difference will reverse equally over the next three years at enacted tax rates as follows.

Year Tax Rate
Year 2 30%
Year 3 25%
Year 4 25%

In Cavan's year 1 income statement, the deferred portion of its provision for income taxes should be:

$120,000

$80,000

$100,000

$90,000

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