Mathhias Co. at the end of 2018, its first year of operations, prepared a reconc
ID: 2530620 • Letter: M
Question
Mathhias Co. at the end of 2018, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 600,000 Estimated litigation expense 1,500,000 Taxable income 2,100,000 The estimated litigation expense of $1,500,000 will be deductible in 2020 when it is expected to be paid. The estimated liability for litigation is classified as noncurrent. The income tax rate is 30% for all years.
6. The income tax expense is
a. $180,000. b. $270,000. c. $300,000. d. $600,000.
7. The deferred tax asset to be recognized is
a. $0. b. $90,000 current. c. $450,000 current. d. $450,000 noncurrent
Explanation / Answer
Answer 6
a. $180,000.
Explanation :
Income Tax expense = Income tax payable - Deferred tax
= ($ 2,100,000 * 30 %) - ($1,500,000 * 30 %) = $630,000 - $450,000 = $180,000
Aswer 7
d. $450,000 noncurrent
Explanation :
Deferred tax = Litigation expense * tax rate = $1,500,000 * 30 % = $450,000
Since litigation expense is non current in nature , its related deferrd tax will also be non current.