Question

he Snella Company reports 2015 Pre-tax Net Income of $10,000. The following items exist:Premiums Paid for Key Officer Life Insurance $ 200Accrued Revenues $ 80Unearned Revenues $ 50The tax rate is 20%. Indicate the amounts for 2015 Income Tax Expense and 12/31/15 Income Tax Payable, respectively:a. $2,040, $2,034b. $1,960, $1,934c. $1,960, $1,986d. $2,040, $1,986e. $2,034, $2,034

Answer 1

Answer:

The Snella Company

e. $2,034, $2,034

Explanation:

The 2015 Income Tax Expense and the 12/31/15 Income Tax Payable will be equal unless some Income Tax Payable for 2014 were being carried forward.  Again, the tax basis and the accrual basis are not the same.  Using the tax basis, we will calculate tax for unearned revenues of $50 and not for accrued revenues of $80.  Premiums paid for key officer life insurance are not tax-deductible.  Life insurance premiums are deductible for the individual and not the corporate entity.  This means that the taxable income will be equal to $10,170 ($10,000 + 200 + 50 - 80).