Income tax expense was $137,500 for the year.The balance of the Income Tax Payable account was $7,500 at the beginning of the year and $10,000 at the end of the year.Cash payments for income tax reported on the cash flow statement using the direct method equal:

Question

Quizplus · Accepted Answer

The cash payments for income tax can be calculated using the formula: Income tax expense + increase in income tax payable - decrease in income tax payable.

So,

Cash payments = 137,500 + (10,000 - 7,500) 
Cash payments = 137,500 + 2,500 
Cash payments = $140,000

However, we need to use the direct method to calculate the cash payments. The increase in income tax payable means that the company paid less income tax than what was accrued during the year. Therefore, the cash payment for income tax would be lower than the income tax expense.

Hence, the correct answer is D) $135,000.

Income Tax Expense Was $137,500 for the Year