1.

1. Mathis Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

   Pretax financial income $ 1,200,000

   Estimated litigation expense 3,000,000

   Installment sales (2,400,000)

   Taxable income $ 1,800,000

   The estimated litigation expense of $3,000,000 will be deductible in 2019 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 30% for all years.

   The income tax payable is:

   		$540,000
   		$1,080,000
   		$360,000
   		$0 (Reported a net loss)

2. Mathis Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

   Pretax financial income $ 1,200,000

   Estimated litigation expense 3,000,000

   Installment sales (2,400,000)

   Taxable income $ 1,800,000

   The estimated litigation expense of $3,000,000 will be deductible in 2019 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 30% for all years.

   The income tax expense is

   		$360,000
   		$540,000
   		$600,000
   		$1,200,000