[Della Rahming]

Taft Corp. uses the equity method to account for its 25% investment in Flame, Inc. During the year, Taft received dividends of $30,000 from Flame and recorded $180,000 as its equity in the earnings of Flame. All the undistributed earnings of Flame will be distributed as dividends in future periods. The dividends received from Flame are eligible for the 80% dividends received deduction. There are no temporary differences. Enacted income tax rates are 30% for the current year and thereafter. In its December 31 balance sheet, what amount should Taft report for deferred income tax liability?

[ROLCAM]

Future dividends are NOT guaranteed until they are actually declared.
Under this rule :-
There is NO liability to declare.

[MaggieMouse]

Taft should create an entry to record the deferred Income Tax, using its investment income proportionate to Flame's income multiply to tax rate, under equity method. Dr. Income tax expense, Cr. Deferred income tax.

For the dividend received, taking account with the dividend deduction, Dr. Deferred income tax, Cr. Income tax payable.

Under equity method, income tax liability is created when there is profit, but only the distributed portion is payable. Rest should be sitting in Deferred Income Tax, which is what 'Deferred' means.