Question

At the end of the year, Falabella Co. has pretax financial income of \(550,000. Included in the \)550,000 is \(70,000 interest income on municipal bonds, \)25,000 fine for dumping hazardous waste, and depreciation of \(60,000. Depreciation for tax purposes is \)45,000. Compute income taxes payable, assuming the tax rate is 30% for all periods.

Short answer

Fine or penalty is the type of payment an organization makes to the associated authority for which therules and regulations are violated. It is claimed under the income tax payable amount.

Step-by-step solution

Given the following

Particulars	Amount
Pretax financial income	$550,000
Interest income on municipal bonds	$70,000
Fine	$25,000
Depreciation	$60,000
Depreciation for tax purpose	$45,000
Tax rate	30%

Computation of income tax payable

Particulars	Amount
Pretax financial income	$550,000
Less: Interest income	$70,000
Add: Fine	$25,000
Add: Depreciation $\left(\$60,000-\$45,000\right)$	$15,000
Taxable income	$520,000
Multiply: Tax rate	30%
Income tax payable	$156,000