At the end of 2020, its first year of operations, Ontario Corp. prepared the following reconciliation between pre-tax accounting income and taxable income: $$\begin{array} { l r }
\text { Pre-tax account ing income } & \$ 300,000 \
\text { Estimated lawsuit expense } & 750,000 \
\text { Instalment sales } & ( 600,000 ) \
\text { Taxable income } & \$ 450,000
\end{array}$$ The estimated lawsuit expense of $ 750,000 will be deductible in 2022 when it is expected to be paid. The instalment sales will be realized at $ 300,000 in each of the next two years. The income tax rate is 30% for all years. The deferred tax liability to be recorded is

Question

At the end of 2020, its first year of operations, Ontario Corp. prepared the following reconciliation between pre-tax accounting income and taxable income: $$\begin{array} { l r } 
\text { Pre-tax account ing income } & \$ 300,000 \
\text { Estimated lawsuit expense } & 750,000 \
\text { Instalment sales } & ( 600,000 ) \
\text { Taxable income } & \$ 450,000
\end{array}$$ The estimated lawsuit expense of $ 750,000 will be deductible in 2022 when it is expected to be paid. The instalment sales will be realized at $ 300,000 in each of the next two years. The income tax rate is 30% for all years. The deferred tax liability to be recorded is

Quizplus · Accepted Answer

The deferred tax liability is calculated as the difference between the taxable income and the pre-tax accounting income, multiplied by the tax rate. In this case, the deferred tax liability is ($450,000 - $300,000) x 30% = $45,000.

At the End of 2020, Its First Year of Operations