Use the following information for questions 55 through 57.
Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years.
-The deferred tax asset to be recognized is

Question

Use the following information for questions 55 through 57.
Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:  The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years.
-The deferred tax asset to be recognized is

Quizplus · Accepted Answer

Deferred tax assets are recognized for temporary differences that will result in deductible amounts in future years. The classification (current vs. noncurrent) depends on the nature of the underlying difference. In this case, without specific details on the nature of the temporary difference, the most common approach is to recognize a deferred tax asset as noncurrent, reflecting the anticipation of it being realized over a period longer than one year.

Use the Following Information for Questions 55 Through 57