Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 800,000 Estimated litigation expense 2,000,000 Installment sales (1,600,000) Taxable income $ 1,200,000 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 40% for all years.  1. The income tax expense is  a. $240,000.  b. $320,000 c. $360,000. d. $400,000

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $ 800,000
Estimated litigation expense 2,000,000
Installment sales (1,600,000)
Taxable income $ 1,200,000


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 40% for all years. 

1. The income tax expense is 

a. $240,000. 

b. $320,000

c. $360,000.

d. $400,000

 

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