Blossom Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $3550000 Estimated litigation expense 4550000 Extra depreciation for taxes (6540000) Taxable income $   1560000 The estimated litigation expense of $4550000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2180000 in each of the next 3 years. The income tax rate is 20% for all years.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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32.

Blossom Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $3550000
Estimated litigation expense 4550000
Extra depreciation for taxes (6540000)
Taxable income
$   1560000

The estimated litigation expense of $4550000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2180000 in each of the next 3 years. The income tax rate is 20% for all years.

Income taxes payable is

$0.
$312000.
$398000.
$598000.
 
 
 
 
 
 
Expert Solution
Step 1

Solution

Given

Pretax financial income                 =$3550000

Estimated litigation expense       =4550000            

Extra depreciation for taxes        =(6540000)

Taxable income                                                =$   1560000

 

Tax rate                =20%

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