Cullumber Co. at the end of 2017, its first year of operations, prepared a recon

Question

Cullumber 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 $1140000 Estimated litigation expense 3250000 Installment sales (2880000) Taxable income $1510000 The estimated litigation expense of $3250000 will be deductible in 2019 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1440000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1440000 current and $1440000 noncurrent. The income tax rate is 40% for all years. The income tax expense is $604000. $720000. $456000. $1440000.

Explanation / Answer

Incpome tax expense = Taxable income * tax rate

= $1510000 * 40%

= $604000

Correct Option is $604000

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