Question

Brief Exercise 19-01 In 2020, Grouper Corporation had pretax financial income of $172,000 and taxable income of $109,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 20%. Compute the amount to be reported as income taxes payable at December 31, 2020. Income taxes payable at December 31, 2020

Answer 1

Income taxes payable is $21,800

Step-by-step explanation:

Income taxes payable=reconciled taxable profit*tax rate

reconciled taxable income is $109,000

tax rate for year 2020 is 20%

income taxes payable =$109,000*20%

income taxes payable =$21,800

The pretax income cannot be used in computing income taxes payable as it is the profit for accounting purposes,in a bid to compute income taxes payable, the accounting profit is reconciled appropriate line by line by tax relevant tax authority in order to discover those income that should be added or deducted as well as expenses.

That process of reconciliation gave rise to $109,000 taxable profit,upon which taxes are payable.