At the end of 2020, its first year of operations, Ontario Corp. prepared the following reconciliation between pre-tax accounting income and taxable income: $$\begin{array} { l r }
\text { Pre-tax account ing income } & \$ 300,000 \
\text { Estimated lawsuit expense } & 750,000 \
\text { Instalment sales } & ( 600,000 ) \
\text { Taxable income } & \$ 450,000
\end{array}$$ The estimated lawsuit expense of $ 750,000 will be deductible in 2022 when it is expected to be paid. The instalment sales will be realized at $ 300,000 in each of the next two years. The income tax rate is 30% for all years. The total income tax expense to be reported on the income statement is

Question

At the end of 2020, its first year of operations, Ontario Corp. prepared the following reconciliation between pre-tax accounting income and taxable income: $$\begin{array} { l r } 
\text { Pre-tax account ing income } & \$ 300,000 \
\text { Estimated lawsuit expense } & 750,000 \
\text { Instalment sales } & ( 600,000 ) \
\text { Taxable income } & \$ 450,000
\end{array}$$ The estimated lawsuit expense of $ 750,000 will be deductible in 2022 when it is expected to be paid. The instalment sales will be realized at $ 300,000 in each of the next two years. The income tax rate is 30% for all years. The total income tax expense to be reported on the income statement is

Quizplus · Accepted Answer

The total income tax expense reported on the income statement is calculated as 30% of the pre-tax accounting income ($300,000 * 30% = $90,000). This is because income tax expense on the income statement is based on pre-tax accounting income, not taxable income.

At the End of 2020, Its First Year of Operations