Use the Following Information for Questions 55 Through 57

question 46

Multiple Choice

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 liability-current to be recognized is

• A) $120,000.
• B) $360,000.
• C) $240,000.
• D) $480,000.

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Definitions:

Premium

An amount paid regularly to insure something or to cover the cost of a policy, also used to describe the amount paid over the nominal value of something.

Bonds

Long-term debt securities issued by corporations and government entities that pay interest to the holder.

Contract Rate

A pre-agreed interest rate applied in the calculation of payments for a specific financial contract.

Market Rate

The prevailing interest rate available in the marketplace for instruments of comparable risk and maturity.