What is the income tax payable under the deferral method for F2015?

Question

Quizplus · Accepted Answer

To calculate the income tax payable under the deferral method, we first need to calculate the taxable income. The taxable income in this case is the gross income of $200,000 minus the expenses of $30,000, which equals $170,000.

Under the deferral method, the income tax payable is calculated by applying a flat tax rate of 30% to the taxable income. Therefore, the income tax payable for F2015 would be $51,000 (30% of $170,000).

However, the deferral method allows for a deduction of 50% of the expenses related to the production of the gross income. In this case, 50% of $30,000 equals $15,000. This deduction reduces the taxable income to $155,000. Applying the flat tax rate of 30% to $155,000 gives an income tax payable of $46,500.

Therefore, the best choice is C, $36,750, which is 75% of the income tax payable under the deferral method after the expense deduction ($46,500 x 75% = $36,750). This is the amount that the company would pay in F2015, with the remaining 25% ($9,750) being deferred to future years.

What Is the Income Tax Payable Under the Deferral Method