Question

Green, a calendar-year taxpayer, is preparing a personal statement of financial condition as of April 30, Year 4. Green’s Year 3 income tax liability was paid in full on April 15, Year 4. Green’s tax on income earned between January and April Year 4 is estimated at $20,000. In addition, $40,000 is estimated for income tax on the differences between the estimated current values and current amounts of Green’s assets and liabilities and their tax bases at April 30, Year 4. No withholdings or payments have been made towards the Year 4 income tax liability. In Green’s April 30, Year 4, statement of financial condition, what amount should be reported for income taxes?
A $40,000
B $20,000
C $0
D $60,000

Answer 1

Answer:

In Green's April 30, Year 4, statement of financial condition, the amount which should be reported for income taxes:

A $40,000

Explanation:

• The option A is correct as only the estimated amount of income taxes on the differences between the estimated current values and current amounts of assets and liabilities is presented between liabilities and net worth.
• The option B is also incorrect as the $20,000 current tax liability would be presented as a liability.
• The option C is also incorrect as the $40,000 estimated income taxes on the differences between the estimated current values and current amounts of assets and liabilities is presented between liabilities and net worth.
• The option D is also incorrect as the $20,000 current tax liability would be presented as a liability while the $40,000 amount would be presented between liabilities and net worth.