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Hopkins Co. at the end of 2010, its first year of operations, prepared a reconci

ID: 2666576 • Letter: H

Question

Hopkins Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $ 750,000

Estimated litigation expense 1,000,000

Extra depreciation for taxes (1,500,000)

Taxable income $ 250,000

The estimated litigation expense of $1,000,000 will be deductible in 2011 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $500,000 in each of the next three years. The income tax rate is 30% for all years.

The deferred tax asset to be recognized is
Answer

a.$75,000 current.
b.$225,000 current.
c.$150,000 current.
d.$300,000 current.

Explanation / Answer

($1,000,000 x 30%) = $300,000