Answer:
$440,000
Explanation:
The first is to calculate the taxable profits and taxable profit can be calculated as under:
Taxable Profit = Pre-Tax Accounting Profit - Tax allowable expenses not deducted + Tax disallowed expenses deducted previously - Tax disallowed Income added previously - Tax allowed income not added in accounting profits
Here
Pre-Tax Accounting Income is $2,500,000
Municipal Bond Income is the Tax Disallowed Income added previously to accounting profits and must be eliminated from it at $100,000
Depreciation for tax purposes which is in excess of the book depreciation allowed is $200,000 and is Tax allowed Expenses not deducted.
By putting the values, we have:
Taxable Profit = $2,500,000 - $200,000 - $100,000
Taxable Profit = $2,200,000
Now we will compute the income tax payable at 20%
Tax Payable = 20% * $2,200,000 = $440,000
Income tax payable is the compulsory charge to be paid by the individual or company earning incomes over the exempt slab rates. Tax payable is computed on the taxable income, which is computed by deducting the deductible expenses and incomes from the net profit earned during a particular financial period.
The amount of income tax payable by Haag is $440,000
Computation:
The taxable income and the income tax payable are shown in the image attached below.
The procedure to compute the tax liability is:
1. Determine the pre-tax accounting income that is given $2,500,000.
2. Deductions like tax allowable expenses, tax allowed incomes, etc. In this case, the deductions are the exempt income from municipal bonds and the deduction of depreciation amount as it was recorded in the financial statement.
3. The amount determined is taxable income over which the 20% income tax rate will be charged.
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