Question

Mathis Co. at the end of 2017, its first year Of operations, prepared a reconciliation between pretax financial income and taxable income as follows.Pretax financial income $ 1,200,000Estimated litigation expense $ 3,000,000Installment sales (2,400,000)Taxable income $ 1,800,000

The estimated litigation expense of $2750000 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 $1100000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1100000 current and $1100000 noncurrent. The income tax rate is 20% for all years.

Find the income tax expense, the deffered tax asset to be recognized, and the defferred tax liablitiy to be recognized.

Answer 1

Answer:

$360,000, $ 900,000, $360,000

Explanation:

Particulars Amount

Income tax payable($1, 800,000 * 30%) $ 540,000

Less: Change in deferred tax asset ($3,000,000 *30%) $ 9,000,000

Add: Change in deferred tax liability ($ 2,400,000 * 30%) $ 720, 000

Income tax expense $ 360,000

Deferred tax asset ($ 3,000,000 *30%) = $ 900,000

Deferred tax asset = $ 900,000 non current

Deferred Tax liability to be recognized($ 1, 200,000 * 30%)  $360,000

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