Current Attempt in Progress
Sheridan 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$1350000
Estimated litigation expense3250000
Installment sales(2600000)
Taxable income 2000000
The estimated litigation expense of $3250000 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 $1300000 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.
The deferred tax asset to be recognized is
$130000 noncurrent.
O $0.
$130000 current.
O $650000 noncurrent.