(Note: Students may want to review the material on the equity method of accounting in Chapter 16 before beginning work on this exercise.)

Tara Corporation uses the equity method of accounting for its 40% investment in Flax’s common stock. During 2011, Flax reported earnings of $750,000 and paid dividends of $250,000. Assume that:

• All undistributed earnings of Flax will be distributed as dividends in future periods.

• The dividends received from Flax are eligible for the 80% dividends received deduction.

• No other temporary differences exist.

• Tara’s 2011 income tax rate is 30%.

• Enacted income tax rates after 2011 are 25%.

Required:

In Tara’s December 31, 2011, balance sheet, what would be the increase in the deferred income tax liability from the preceding transactions?