Question

Cullumber 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 $1230000 Estimated litigation expense 3050000 Installment sales (2440000) Taxable income $1840000 The estimated litigation expense of $3050000 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 $1220000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1220000 current and $1220000 noncurrent. The income tax rate is 20% for all years. The deferred tax asset to be recognized is

Answer 1

$610,000

Step-by-step explanation:

The computation of the deferred tax asset is shown below:

= Estimated litigation expense × tax rate

= $3,050,000 × 20%

= $610,000

By multiplying the estimated litigation expense with the tax rate we can determine the deferred tax asset

Therefore the above represent the answer