Lyon Ltd., a U.S. GAAP reporter, provides the following information:
Sales on account $800,000
Associated warranty expense/liability $200,000
No warranty repairs made to date; Lyon cannot deduct warranty expense for tax purposes until repairs are made.
Management estimates that it is more likely than not that the firm will not realize 25% of the deferred tax asset.
Tax rate of 35%
Prepare a simplified income statement, including the effective tax rate, both with and without the valuation allowance. Round percentages to the nearest whole number.

Question

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The Answer of Lyon Ltd., a U.S. GAAP reporter, provides the following information:
Sales on account $800,000
Associated warranty expense/liability $200,000
No warranty repairs made to date; Lyon cannot deduct warranty expense for tax purposes until repairs are made.
Management estimates that it is more likely than not that the firm will not realize 25% of the deferred tax asset.
Tax rate of 35%
Prepare a simplified income statement, including the effective tax rate, both with and without the valuation allowance. Round percentages to the nearest whole number.

Lyon Ltd, a U