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 30% for all years.
25. The income tax expense is
a. $240,000.
b. $360,000.
c. $400,000.
d. $800,000.
26. The deferred tax asset to be recognized is
a. $0.
b. $120,000 current.
c. $600,000 current.
d. $600,000 noncurrent.
27. The deferred tax liability—current to be recognized is
a. $120,000.
b. $360,000.
c. $240,000.
d. $480,000.
