At the End of 2020, Its First Year of Operations

question 34

Multiple Choice

At the end of 2020, its first year of operations, Rinaldo 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 asset to be recorded is

• A) $ 0.
• B) $ 45,000.
• C) $ 90,000.
• D) $ 225,000.

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Definitions:

Aggregate Income

The total income earned by all individuals or entities in an economy, including wages, profits, rents, and investment income, before taxes.

Aggregate Income

The total amount of income generated by all individuals and entities within an economy over a specific time period.

Consumption Function

An economic formula that expresses the relationship between total consumption and gross national income, positing that people increase their consumption as income rises, but not necessarily by the same amount.

Aggregate Income

The total income earned by all individuals in an economy from all sources, including wages, rental income, and investment income, during a given time period.