Question

In 2017, Amirante Corporation had pretax financial income of $168,000 and taxable income of $120,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2017.

Answer 1

• Income tax payable is calculated by considering Taxable Income and multiplying such taxable income by the prevailing tax rate.
• In this case, Income Taxes payable at December 31, 2017 will be $ 120,000 x 40% = $ 48,000
• Hence, Amount reported as Income tax payable at Dec 31, 2017 is $ 48,000.
• Note: The difference in financial income and taxable income will result in deferred taxes and this will affect the “Income tax expense” for the year. But Income Tax payable that is to be reported will be     $ 48,000 only.