Question
Mathis Co. at the end of 2021, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax
Mathis Co. at the end of 2021, 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 2022 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 deferred tax asset to be recognized at the end of year 2021 is
a. $0.
b. $180,000 current.
c. $900,000 current.
d. $900,000 noncurrent
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