Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 800,000 Estimated litigation expense 2,000,000 Installment sales (1,600,000) Taxable income $ 1,200,000 The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 40% for all years. 2. The deferred tax asset to be recognized is a. $240,000 current b. $240,000 noncurrent c. $800,000 current d. $800,000 noncurrent
Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 800,000 Estimated litigation expense 2,000,000 Installment sales (1,600,000) Taxable income $ 1,200,000 The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 40% for all years. 2. The deferred tax asset to be recognized is a. $240,000 current b. $240,000 noncurrent c. $800,000 current d. $800,000 noncurrent
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
| Pretax financial income | $ 800,000 |
| Estimated litigation expense | 2,000,000 |
| Installment sales | (1,600,000) |
| Taxable income | $ 1,200,000 |
The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 40% for all years.
2. The
a. $240,000 current
b. $240,000 noncurrent
c. $800,000 current
d. $800,000 noncurrent
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