At the end of Year 1, its first year of operations, Colorado Corp. prepared the following reconciliation between pre-tax accounting income and taxable income:

Pre-tax accounting income	$300,000
Estimated lawsuit expense	750,000
Instalment sales	(600,000)
Taxable income	$450,000

The estimated lawsuit expense of $750,000 will be deductible in Year 2 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:

Select one:

a.

$180,000

b.

$90,000

c.

$67,500

d.

$45,000

The Correct Answer is $180,000. Please let me know how did they solve.

Answer rating: 100% (QA)

As per IAS 12 Income taxes taxable temporary Deferred tax liability has to be created if there are a... View the full answer