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$ 328000 Crane Co. at the end of 2017, its first year of operations, prepared a

ID: 2394930 • Letter: #

Question

$   328000

Crane 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 $2340000 Estimated litigation expense 3340000 Extra depreciation for taxes (5352000) Taxable income

$   328000


The estimated litigation expense of $3340000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1784000 in each of the next 3 years. The income tax rate is 30% for all years.

The deferred tax liability to be recognized is

Explanation / Answer

In the year 2017 there is excess depreciation is allowed which will create liability in future years, so deferred tax liability in futures will be $5,352,000 x 30% = $1,605,600

The deferred tax liability to be recognized is $1,605,600

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