Hopkins 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 $3,000,000 Estimated litigation expense 4,000,000 Extra depreciation for taxes (6,000,000) Taxable income $ 1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 30% for all years. The deferred tax asset to be recognized is

Question

Imani Moran

Business

13 May, 18:40

Hopkins 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 $3,000,000 Estimated litigation expense 4,000,000 Extra depreciation for taxes (6,000,000) Taxable income $ 1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 30% for all years. The deferred tax asset to be recognized is

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Shaylee Petty · Answer 1

The deferred tax asset to be recognized is $300,000

Explanation:

In order to calculate the deferred tax asset to be recognized we would have to make the following calculation with the following formula according to the given dа ta:

Income tax payable = Taxable income*Tax rate

Therefore, Income tax payable=$1,000,000*30%

Income tax payable = $300,000

The deferred tax asset to be recognized is $300,000