Bond Company started to manufacture in 2013 copy machines that are sold on the installment basis. The entity

recognized revenue when equipment is sold for financial reporting purposes, and when installment payments are

received for tax purposes. In 2013, the entity recognized gross profit of P6,000,000 for financial reporting purposes,

and P1,500,000 for tax purposes. The amounts of gross profit expected to be recognized for tax purposes in 2014 and

2015 are P2,500,000 and P2,000,000, respectively.

The entity guaranteed the copy machines for two years. Warranty costs are recognized on the accrual basis for financial

accounting purposes and when paid for tax purposes. Warranty expense accrued in 2013 is P2,500,000, but only

P500,000 of warranty cost is paid in 2013. It is expected that in 2014 and 2015, P1,000,000 and P1,000,000

respectively, of warranty costs will be paid. In addition during 2013, P500,000 interest, net of 20% final income tax,

was received and earned, and PI00,000 insurance premium on life insurance policy that covered the life of the president

was paid. The entity is the beneficiary. The tax rate is 30%. Pretax accounting income in 2013 was P2,000,000. Any

2013 operating loss will be carried to 2014.

1. What is the deferred tax asset on December 31,2013?

A. 270,000 C. 600,000

B. 480,000 D. 870,000

2. What is the deferred tax liability on December 31,2013?

A. 1,320,000 C. 1,500,000

B. 1,350,000 D. 1,800,000

3. What is the total tax expense?

A. 0 C. 600,000

B. 480,000 D. 630,000