Reference no: EM132545954

Question - Arya Co. at the end of 2019, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 600,000, Estimated litigation expense $1,500,000, Installment sales $1,200,000. Thus, Taxable income is $ 900,000. The estimated litigation expense of $1,500,000 will be deductible in 2021 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $600,000 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 $600,000 current and $600,000 non-current. The income tax rate is 30% for all years.

Instructions -

(a) Compute the income tax expense.

(b) Compute deferred tax asset to be recognized.

(c) Compute the deferred tax liability (current).