On January 1, 2015, Piper Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2015, Betz reported earnings of $720,000 and paid dividends of $240,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 25%. The increase in Piper's deferred income tax liability for this temporary difference is

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The increase in Piper's deferred income tax liability for this temporary difference is calculated based on the undistributed earnings of Betz that Piper is attributed (40% of $720,000 - $240,000 = $288,000). Since Piper assumes all of Betz's undistributed earnings will be distributed in the future when the tax rate is 30%, the temporary difference is $288,000. The increase in deferred tax liability is 30% of $288,000, which is $86,400. However, the correct calculation for the temporary difference should be based on Piper's share of Betz's undistributed earnings (40% of ($720,000 - $240,000) = $192,000). The future tax rate is 30%, so the increase in deferred tax liability is 30% of $192,000 = $57,600.