Hunter 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 $ 1,200,000 Estimated litigation expense 2,000,000 Installment sales (3,000,000) Taxable income $ 200,000 The estimated litigation expense of $2,000,000 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 $1,500,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,500,000 current and $1,500,000 noncurrent. The income tax rate is 20% for all years. The deferred tax liability to be recognized is a. $150,000. b. $450,000. c. $600,000. d. $300,000.
Hunter 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 $ 1,200,000
Estimated litigation expense 2,000,000
Installment sales (3,000,000)
Taxable income $ 200,000
The estimated litigation expense of $2,000,000 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 $1,500,000 in each of the next two years. The estimated liability for litigation
is classified as noncurrent and the installment
$1,500,000 current and $1,500,000 noncurrent. The income tax rate is 20% for all
years.
The
a. $150,000.
b. $450,000.
c. $600,000.
d. $300,000.
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