Davis Company began manufacturing operations on January 2, 2015. During 2015 Davis earned pre-tax book income of $85,000 and had taxable income of $75,000. Davis had a temporary difference relating to a prepaid asset that will be expensed as follows for book purposes:
$$\begin{array} { l l }
2016 & \$ 7,500 \
2017 & \$ 2,500
\end{array}$$
-If Davis paid no estimated taxes,income tax payable at the end of 2015 is

Question

Davis Company began manufacturing operations on January 2, 2015. During 2015 Davis earned pre-tax book income of $85,000 and had taxable income of $75,000. Davis had a temporary difference relating to a prepaid asset that will be expensed as follows for book purposes:
$$\begin{array} { l l } 
2016 & \$ 7,500 \
2017 & \$ 2,500
\end{array}$$
-If Davis paid no estimated taxes,income tax payable at the end of 2015 is

Quizplus · Accepted Answer

Income tax payable is calculated based on taxable income, not book income. Since Davis had taxable income of $75,000 and assuming a tax rate of 30% (a common assumption in such problems as the rate is not provided), the income tax payable would be 75,000 * 0.30 = $22,500.

Davis Company Began Manufacturing Operations on January 2, 2015 2016$7,5002017$2,500\begin{array} { l l } 2016 & \$ 7,500 \\2017 & \$ 2,500\end{array}20162017​$7,500$2,500​

Davis Company Began Manufacturing Operations on January 2, 2015 $\begin{array} { l l } 2016 & \$ 7,500 \\2017 & \$ 2,500\end{array}$