Reference no: EM132534572

Question - ABC Co. at the end of 2018, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income - $500,000

Estimated litigation expense - 1,250,000

Installment sales - (1,000,000)

Taxable income - $750,000

The estimated litigation expense of $1,250,000 will be deductible in 2020 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $500,000 in each of the next two years. The estimated liability for litigation is classified as non-current and the installment accounts receivable are classified as $500,000 current and $500,000 non-current. The income tax rate is 30% for all years.

Instructions -

a) Calculate the income tax payable and income tax expense for 2018 (Show all your computations).

b) Present relevant journal entries for 2018.