Pharoah 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 Estimated litigation expense Installment sales Taxable income $1320000 O $256000. O $512000. O $392000. $128000. 3200000 (2560000) $1960000 The estimated litigation expense of $3200000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1280000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1280000 current and $1280000 noncurrent. The income tax rate is 20% for all years. The deferred tax liability to be recognized is
Pharoah 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 Estimated litigation expense Installment sales Taxable income $1320000 O $256000. O $512000. O $392000. $128000. 3200000 (2560000) $1960000 The estimated litigation expense of $3200000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1280000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1280000 current and $1280000 noncurrent. The income tax rate is 20% for all years. The deferred tax liability to be recognized is
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Pharoah 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
Estimated litigation expense
Installment sales
Taxable income
$1320000
O $256000.
O $512000.
O $392000.
$128000.
3200000
(2560000)
$1960000
The estimated litigation expense of $3200000 will be deductible in 2022 when it is expected to be paid. The gross profit from the
installment sales will be realized in the amount of $1280000 in each of the next two years. The estimated liability for litigation is
classified as noncurrent and the installment accounts receivable are classified as $1280000 current and $1280000 noncurrent. The
income tax rate is 20% for all years.
The deferred tax liability to be recognized is
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