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$ 832000 . at the end of 2017, its first year of operations, prepared a reconcil

ID: 2576708 • Letter: #

Question

$   832000

. 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 $2835000 Estimated litigation expense 3835000 Extra depreciation for taxes (5838000) Taxable income

$   832000


The estimated litigation expense of $3835000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1946000 in each of the next 3 years. The income tax rate is 40% for all years.

The deferred tax liability to be recognized is

$2335200. $1534000. $1935200. $1134000.

Explanation / Answer

A. $2,335,200

The deferred tax liability to be recognized is:

= $5,838,000 × 40%

= $2,335,200

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