3-5. 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 income tax rate is 30% for all years.

The deferred tax asset to be recognized is

a. $0.

b. $180,000.

c. $900,000.

d. $870,000.

The deferred tax liability to be recognized is

a. $180,000.

b. $540,000.

c. $720,000.

d. $360,000.

The income tax expense is

a. $360,000.

b. $540,000.

c. $600,000.

d. $1,200,000.