Question

Inc. reported earnings before income taxes of $3,450,000 in 20X9. The tax rate for this year is 40%.

Item

1. Golf club dues, $52,000
2. Depreciation expense, $68,000
3. Development costs incurred during year; capitalized for accounting purposes, $260,000
4. Warranty costs accrued during year, $46,000
5. Interest and penalty for late payment payroll taxes, $65,000
6. CCA, $500,000
7. Amortization of capitalized development costs, $26,000
8. Costs incurred during year for warranty work completed, $34,500

Required:
1. After adjusting for all of the items listed above, what is the taxable income?  
2. What is the amount of income taxes payable?

Answer 1

1) Calculation of Taxable income

Earnings ( Given ) 3,450,000

Less: Golf club dues 52,000

Depreciation expense 68,000

   Warranty costs 46,000

CCA 500,000

  Amortization of capitalized development 26,000

Cost of warranty work 34,500 ( 726,500)

Taxable income    2,723,500

2) Calculation of income taxes payable

Taxable income 2,723,500

Income tax @ 40% (2,723,500*40%) 1,089,700

Notes and assumptions

1) Interest and penalty are not allowed under income tax act.

2) Depreciation is same as per income tax act and companies act hence allowed under income tax act.

3) the given tax rate is assumed that inclusive of applicable education cess and surcharge as applicable.