Sheridan Co. at the end of 2024, 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 Income tax expense for 2024 is O $930000. $1350000 The estimated litigation expense of $3250000 will be deductible in 2026 when it is expected to be paid. Gross profit of $1300000 from the installment sales will be realized in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1300000 current and $1300000 noncurrent. The income tax rate is 20% for all years. +070000 3250000 (2600000) $2000000

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue autho…