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$ 1605000 Pharoah Co. at the end of 2017, its first year of operations, prepared

ID: 2576658 • Letter: #

Question

$   1605000

Pharoah 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 $3550000 Estimated litigation expense 4055000 Extra depreciation for taxes (6000000) Taxable income

$   1605000


The estimated litigation expense of $4055000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2000000 in each of the next 3 years. The income tax rate is 40% for all years.

Income taxes payable is

$642000. $980000. $778000. $0.

Explanation / Answer

A. $642,000

Income taxes payable is:

= Taxable income × Tax rate

= $1,605,000 × 40%

= $642,000

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