Question
Wildhorse Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax
Wildhorse 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 | $1470000 |
Estimated litigation expense | 3450000 |
Installment sales | (2760000) |
Taxable income | $2160000 |
The estimated litigation expense of $3450000 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 $1380000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1380000 current and $1380000 noncurrent. The income tax rate is 20% for all years. The deferred tax asset to be recognized is
$138000 noncurrent.
$0.
$690000 noncurrent.
$138000 current.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started