The Chance Company began operations in 2014 and, for that calendar year, reported an operating loss of $200,000. Due to sufficient verifiable positive evidence, no valuation allowance was established to reduce the deferred tax asset as of December 31, 2014. During 2015, Chance reported pretax accounting income of $375,000. Assuming an income tax rate of 35%, what should Chance record in 2015 as income tax payable at the end of 2015?

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Chance had a deferred tax asset of $70,000 (35% x $200,000) as of December 31, 2014, which is expected to be realized in future years. In 2015, Chance reported pretax accounting income of $375,000. Applying the tax rate of 35%, Chance's income tax payable for 2015 would be $131,250 (35% x $375,000). However, Chance has a deferred tax asset of $70,000, which can offset the income tax payable. Therefore, the income tax payable at the end of 2015 would be $131,250 - $70,000 = $61,250 (Choice C).

The Chance Company Began Operations in 2014 And, for That