Problem - Wildhorse Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income $2835000
Estimated litigation expense 3835000
Extra depreciation for taxes (5838000)
Taxable income $ 832000
The estimated litigation expense of $3835000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1946000 in each of the next 3 years. The income tax rate is 40% for all years.
The deferred tax liability to be recognized is
$2335200.
$1534000.
$1935200.
$1134000.