ABC Co. at the end of 2007, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income $ 750,000
Estimated litigation expense 1,000,000
Extra depreciation for taxes (1,500,000)
Taxable income $ 250,000
The estimated litigation expense of $1,000,000 will be deductible in 2008 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $500,000 in each of the next three years. The income tax rate is 30% for all years.
21. Income tax payable is
22. The deferred tax asset to be recognized is
a. $75,000 current.
b. $150,000 current.
c. $225,000 current.
d. $300,000 current.
23. The deferred tax liability to be recognized is
a. $150,000 $300,000
b. $150,000 $225,000
c. $0 $450,000
d. $0 $375,000
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