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    Fritzell Co. Current Income Taxes and Deferred Tax Asset

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    Frizell 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.

    The deferred tax asset to be recognized is

    a. $75,000 current.
    b. $150,000 current.
    c. $225,000 current.
    d. $300,000 current.

    Current income tax payable is
    a. $0.
    b. $75,000.
    c. $150,000.
    d. $225,000.

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    Solution Preview

    The deferred tax asset relates to future deductible amounts. The amount is deducted in the financial income now and would be deducted in the taxable income ...

    Solution Summary

    The solution explains how to calculate the amount of deferred tax asset and current income tax payable in 112 words with calculations.