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Basic Question 5 of 7
Diamond, Inc. reported income before taxes for book purposes of $120,000 for 2015, their first year of operations. MACRS tax depreciation was $5,000 and book depreciation was $3,000. The statutory rate in effect is 35% and it is expected to remain the same in future years. If Diamond paid no estimated taxes during the year, what amount of income taxes payable should the firm report in its December 31, 2015 balance sheet?
B. $41,300
C. $42,700
A. $42,000
B. $41,300
C. $42,700
User Contributed Comments 12
| User | Comment |
|---|---|
| george2006 | pretax income for tax purpose = pretax income for book purpose + difference in depre. |
| Mimi29 | Income before taxes in financial statement is $120'000. But income reported for tax purposes will be 118'000 (120'000-2000), because depreciation for tax purposes is 2000 more. The amount of tax that they will pay is based on taxable income (= 118'000). |
| achu | Remember, 3K book depreciation already included in Net PreTax Income. So we adjust only for the DIFFERENCE between Tax Depr and BalSheet Depr. |
| Khadria | Its EBIT and not REVENUE. |
| krisscfa | Good One!! |
| uberstyle | yes, thanks achu, that is the key point. |
| weic08 | thx Mimi29 |
| boddunah | EBT = $120,000. $3000 DEP accounted for . $5000-$3000 = $2000 should be deducted from EBT to get $118,000 taxable income. |
| sapu | if in this question dtl or dta is given will it effect the answer? |
| rezazaveri | DTL = (3000-5000)*0.35 = -700 ITE = TP +DTL-DTA = 42000 + (-700) - 0 = 41300 |
| maryprz14 | 700 deferred tax liability? |
| mali97 | why did u write what tax should firm report on its balance sheeet. should write what tax authority should report onn their B/s |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
contrast accounting profit, taxable income, taxes payable, and income tax expense and temporary versus permanent differences between accounting profit and taxable income
CFA® 2025 Level I Curriculum, Volume 3, Module 9.