In 2014,The Xavier Company,reported pretax financial income of $400,000.Included in that pretax financial income was $90,000 of nontaxable life insurance proceeds received as a result of the death of an officer;$120,000 of warranty expenses accrued but unpaid as of December 31,2014;and $30,000 of life insurance premiums for a policy for an officer.Assuming that no income taxes were previously paid during the year and assuming an income tax rate of 40 percent,the amount of income taxes payable on December 31,2014,would be

Question

Quizplus · Accepted Answer

To calculate the income tax payable, we need to adjust the pretax financial income for the nontaxable life insurance proceeds and the unpaid warranty expenses since they are either not taxable or not deductible in the current year.

Adjusted Pretax Financial Income = Pretax Financial Income - Nontaxable Life Insurance Proceeds + Deductible Warranty Expenses
Adjusted Pretax Financial Income = $400,000 - $90,000 + $0 (warranty expenses are deductible when paid, so we can't include the unpaid amount)

Adjusted Pretax Financial Income = $310,000

Now we can calculate the income tax payable as follows:

Income Tax Payable = Income before Taxes x Tax Rate
Income Tax Payable = $310,000 x 0.40
Income Tax Payable = $124,000

However, we also need to add back the nondeductible life insurance premiums paid:

Income Tax Payable = Income before Taxes x Tax Rate + Nondeductible Life Insurance Premiums
Income Tax Payable = $310,000 x 0.40 + $30,000
Income Tax Payable = $124,000 + $30,000
Income Tax Payable = $154,000

Therefore, the income taxes payable on December 31, 2014, would be $184,000 ($154,000 + $30,000). The correct answer is D).

In 2014,The Xavier Company,reported Pretax Financial Income of $400,000