25-27. Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $ 800,000

Estimated litigation expense 2,000,000

Installment sales (1,600,000)

Taxable income $ 1,200,000

The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years.

25. The income tax expense is

a. $240,000.

b. $360,000.

c. $400,000.

d. $800,000.

26. The deferred tax asset to be recognized is

a. $0.

b. $120,000 current.

c. $600,000 current.

d. $600,000 noncurrent.

27. The deferred tax liabilitycurrent to be recognized is

a. $120,000.

b. $360,000.

c. $240,000.

d. $480,000.

Use the following information for questions 23 and 24.

Harrison Company owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2015, Taylor earns $1,000,000 and pays cash dividends of $800,000.

23. If the beginning balance in the investment account was $625,000, the balance at December 31, 2015 should be

a. $1,025,000.

b. $825,000.

c. $705,000.

d. $625,000.

24. Harrison should report investment revenue for 2015 of

a. $400,000.

b. $320,000.

c. $80,000.

d. $0.