Marsh Co. at the end of 2011, its first year of operations, prepared a reconcili

Question

Marsh Co. at the end of 2011, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
   Pretax financial income $900,000
   Estimated litigation expense $1,200,000
   Extra depreciation for taxes     ($1,800,000)
   Taxable income   $300,000
The estimated litigation expense of $1,200,000 will be deductible in 2012 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $600,000 in each of the next three years. The income tax rate is 30% for all years.

Income tax payable is
a. $0
b. $90,000
c. $180,000
d. $275,000

The deferred income tax to be recognized is
CURRENT. NONCURRENT
a. $180,000 asset. $200,000 payable
b. $360,000 payable. $540,000 asseet
c. $360,000 asset. $540,000 payable
d. $0 asset. $190,000 payable

PLEASE SHOW ALL CALCULATIONS. THANK YOU.

Explanation / Answer

1 ) Taxable amount = 300000

Tax retae is 30 %

Tax amount = 300000 x 30 %,= 90000

2) Now we will be allowed expenses of 1200000 in next year

tax rate = 30 %

so we have tax asset of 1200000 x 30 % , =360000

and 1800000 will be taxable amount in next 3 years

tax liability = 1800000 x 30 % = 540000

so answer is option 3

360000 current asset

540000 non current payable

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