Davis, Inc. uses the accrual method of accounting and the calendar year accounting period for both financial reporting and tax purposes.

Davis, Inc. uses the accrual method of accounting and the calendar year accounting period for both financial reporting and tax purposes. Davis has provided the following information from its 2010 financial statements:Operating RevenueSales – $1,000,000 Cost of Goods Sold – 400,000Gross Profit – 600,000Operating ExpensesMeals and Entertainment – 40,000 Bad Debts – 10,000 Depreciation – 100,000 Warranty Expense – 20,000Fine (levied by Environmental Protection Agency) – $10,000 Other Expenses – 250,000Other IncomeMunicipal Bond Interest Income – 10,000Net Income Before Tax – 180,000 Federal Income Tax – 80,000Net Income – 100,000 In addition, Davis has provided the following information:• Allowance for Doubtful Accounts December 31, 2009 – $15,000• Allowance for Doubtful Accounts December 31, 2010 – $20,000• MACRS depreciation (including §179 deduction) for 2010 – $175,000• Warranty Reserve December 31, 2009 – $50,000• Warranty Reserve December 31, 2010 – $40,000• Accumulated depreciation per financial statements December 31, 2010 – $400,000• Accumulated tax depreciation (including §179) December 31, 2010 – $500,000At December 31, 2010, the gross amount of Davis’ deductible temporary differences is: a. $20,000 b. $40,000 c. $60,000 d. $100,000

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