[APPENDIX] For 2015, Wasabi Company has accounting revenues of $6,000.However, because of temporary differences between tax and accounting, $1,000 of this is not subject to tax.If expenses are $3,000 for both tax and accounting, and the tax rate is 40%, what is the amount of tax payable to the IRS?
A)$ 400
B)$ 800
C)$1,200
D)$1,600

Question

Quizplus · Accepted Answer

To calculate taxable income, we need to adjust the revenues and expenses for temporary differences. 
Taxable Income = Accounting Income - Temporary Differences
Taxable Income = $6,000 - $1,000 = $5,000 
Thus, the tax payable to the IRS is:
Tax Payable = Taxable Income * Tax Rate
Tax Payable = $5,000 * 0.40 = $2,000 
However, we need to adjust for the temporary difference that is not subject to tax:
Adjusted Tax Payable = Tax Payable - (Temporary Difference * Tax Rate)
Adjusted Tax Payable = $2,000 - ($1,000 * 0.40) = $1,600 
Therefore, the correct answer is B) $800.

[APPENDIX] for 2015, Wasabi Company Has Accounting Revenues of $6,000