Spa Company uses the direct method in determining net cash provided by operating activities. The income statement shows income tax expense $85000. Income taxes payable were $35000 at the beginning of the year and $20000 at the end of the year. Cash payments for income taxes are
A) $70000.
B) $85000.
C) $100000.
D) $140000.

Question

Quizplus · Accepted Answer

To calculate cash payments for income taxes using the direct method, you adjust the income tax expense by the change in income taxes payable. The income tax expense is $85,000. Income taxes payable decreased from $35,000 to $20,000, meaning $15,000 less is owed at the end of the year. Therefore, the cash paid for income taxes is $85,000 + ($35,000 - $20,000) = $85,000 + $15,000 = $100,000.

Spa Company Uses the Direct Method in Determining Net Cash