Question

Sheridan Company had a 40 percent tax rate. Given the following pre-tax amounts, what would be the income tax expense reported on the face of the income statement?

Sales revenue $ 500,000
Cost of goods sold 300,000
Salaries and wages expense 40,000
Depreciation expense 55,000
Dividend revenue 45,000
Utilities expense 5,000
Extraordinary loss 50,000
Interest expense 10,000
a. $54,000
b. $34,000
c. $36,000
d. $16,000

Answer 1

a. $54,000

Explanation:

The computation of income tax expense reported on the face of the income statement is shown below:-

Income before tax = Sales revenue + Dividend revenue - Cost of goods sold - Salaries and wages expenses - Depreciation expenses - Utilities expenses - Interest expenses

= $500,000 + $45,000 - $300,000 - $40,000 - $55,000 - $5,000 - $10,000

= $135,000

Income tax expenses = Before Income tax × Income tax rate

= $135,000 × 40%

= $54,000