Question
Sandhill Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax
Sandhill Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income$3440000
Estimated litigation expense
4440000
Extra depreciation for taxes
(6432000)Taxable income
$1448000
The estimated litigation expense of $4440000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2144000 in each of the next 3 years. The income tax rate is 20% for all years.
The deferred tax liability to be recognized is
A. $888000.
B. $1086400.
C. $688000.
D. $1286400.
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