The following differences enter into the reconciliation of accounting profit and taxable profit of Mule Company for the year ended December 31, 2017, its first year of operations.

Life insurance expense

100,000

Excess tax depreciation

2,000,000

Warranty expense

200,000

Litigation expense

500,000

Unamortized computer software

3,000,000

Unearned rent income deferred on the books but appropriately recognized in taxable profit

400,000

Interest income from long-term certificate of deposit

200,000

Additional information:

On July 1, 2017 Mule paid insurance premium of 200,000 on the life of an officer with Mule Company as beneficiary.

Excess tax depreciation will reverse equally over a four-year period, 2018-2021.

The warranty liability is the estimated warranty cost that was recognized as expense in 2017 but deductible for tax purposes when actually paid.

It is estimated that the litigation will be paid in 2021.

In January 2017, Mule Company incurred 4,000,000 of computer software cost. Considering the technical feasibility of the project, this cost was capitalized and amortized over 4 years for accounting purposes. However, the total amount was expensed in 2017 for tax purposes.

Rent income will be recognized during the last year of the lease, 2021.

Interest income from the long-term certificate of deposit is expected to be 200,000 each year until their maturity at the end of 2021.

Accounting profit for 2017 is 10,000,000. Tax rate is 35%.

Compute for the following -

1.Deferred tax liability

a.1,050,000c.1,750,000

b.1,890,000d.2,100,000

2.Deferred tax asset

a.210,000c.245,000

b.385,000d.1,085,000

3.Current tax expense

a.1,750,000c.1,820,000

b.2,100,000d.2,800,000

4.Tax expense

a.3,465,000c.3,500,000

b.3,535,000d.4,830,000