In 2014, Waterford Corporation reported pretax financial income of $400,000. Included in that pretax financial income was $150,000 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 $10,000 of bad debts estimated to be uncollectible (but not written off as of December 31, 2014). Assuming that no income taxes were previously paid during the year and an income tax rate of 30%, the amount of income taxes payable on December 31, 2014, would be

Question

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First, we need to calculate the taxable income by subtracting the nontaxable income from the pretax financial income:

Taxable income = $400,000 - $150,000 = $250,000

Next, we need to adjust the taxable income for the warranty expenses and estimated bad debts:

Adjusted taxable income = $250,000 - $120,000 - $10,000 = $120,000

Finally, we can calculate the income tax payable:

Income tax payable = $120,000 x 0.30 = $36,000

Adding the income tax payable to the amount of warranty expenses accrued but unpaid gives us the total income tax liability:

Total income tax liability = $36,000 + $78,000 = $114,000

Therefore, the correct answer is C) $114,000.

In 2014, Waterford Corporation Reported Pretax Financial Income of $400,000