Question

The following information is available for Cullumber Company after its first year of operations: Income before income taxes $260000 Federal income tax payable $109000 Deferred income tax (4200) Income tax expense 104800 Net income $155200 Cullumber estimates its annual warranty expense as a percentage of sales. The amount charged to warranty expense on its books was $96000. Assuming a 40% income tax rate, what amount was actually paid this year for warranty claims?

Answer 1

Answer:

$85,500

Explanation:

The computation of the amount that was actually paid is

= Amount charged to warranty expense on its books - Deferred income tax before charging income tax

= $96,000 -  $4,200 ÷ 0.40

= $96,000 - $10,500

= $85,500

Simply we subtract the deferred income tax before income tax from the warranty expense so that the actual amount could come