Question

For the current year, Eastern Atlantic Company reported income tax expense of $21,000. Income taxes payable at the end of the prior year were $19,000 and at the end of the current year were $20,000. The deferred tax liability classified as noncurrent that resulted from the use of MACRS for tax purposes and straight-line depreciation for financial reporting purposes increased from $21,000 at the beginning of the current year to $23,000 at the end of the current year. How much cash was paid for income taxes during the year?

Answer 1

Answer: Cash paid for income taxes during the year: $ 18,000

Deferred tax expense included in income tax expense reported for the year = Ending deferred tax liability - Beginning deferred tax liability = $ 23,000 - $ 21,000 = $ 2,000

Therefore, current tax expense = $ 21,000 - $ 2,000 = $ 19,000

Cash paid for income taxes during the year = Income tax payable at the end of the prior year + current tax expense - income tax payable at the end of the current year = $ 19,000 + $ 19,000 - $ 20,000 = $ 18,000