Q.6

Pharoah Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: The estimated litigation expense of $3200000 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 $1280000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1280000 current and $1280000 noncurrent. The income tax rate is 20% for all years. The deferred tax liability to be recognized is $256000.$512000.$392000.$128000