The income statement for Simpson,Inc.indicates that tax expense was $30,000.The balance sheet indicates that taxes payable for the same year increased by $5,000.What amount did Simpson,Inc.actually pay in taxes during this year?
A) $15,000
B) $20,000
C) $25,000
D) Cannot be determined without the cash balance

Question

Quizplus · Accepted Answer

Tax expense on the income statement represents the amount of tax liability the company has incurred for the period, whereas taxes payable on the balance sheet represents the amount of taxes that the company owes to the tax authorities as of the balance sheet date. 
Therefore, the actual amount Simpson, Inc. paid for taxes during the year was the tax expense of $30,000 minus the increase in taxes payable of $5,000, which equals $25,000.

The Income Statement for Simpson,Inc