The following selected account balances appeared on the financial statements of the Washington Company. Use these balances to answer the questions that follow.
$\begin{array}{lr}
\text { Accounts receivable, Jan. } 1 & \$ 13,000 \
\text { Accounts receivable, Dec. } 31 & 9,000 \
\text { Accounts payable, Jan. 1 } & 4,000 \
\text { Accounts payable, Dec. } 31 & 7,000 \
\text { Inventory, Jan. 1 } & 10,000 \
\text { Inventory, Dec. } 31 & 15,000 \
\text { Sales } & 56,000 \
\text { Cost of goods sold } & 31,000
\end{array}$ The Washington Company uses the direct method to calculate net cash flow from operating activities. Assume that all accounts payable are owed to merchandise suppliers.

-Income tax expense was $175,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year, respectively. Cash payments for income tax reported on the statement of cash flows using the direct method is
A) $175,000
B) $165,000
C) $205,000
D) $215,000

Question

The following selected account balances appeared on the financial statements of the Washington Company. Use these balances to answer the questions that follow.
 $\begin{array}{lr}
\text { Accounts receivable, Jan. } 1 & \$ 13,000 \
\text { Accounts receivable, Dec. } 31 & 9,000 \
\text { Accounts payable, Jan. 1 } & 4,000 \
\text { Accounts payable, Dec. } 31 & 7,000 \
\text { Inventory, Jan. 1 } & 10,000 \
\text { Inventory, Dec. } 31 & 15,000 \
\text { Sales } & 56,000 \
\text { Cost of goods sold } & 31,000
\end{array}$ The Washington Company uses the direct method to calculate net cash flow from operating activities. Assume that all accounts payable are owed to merchandise suppliers.
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-Income tax expense was $175,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year, respectively. Cash payments for income tax reported on the statement of cash flows using the direct method is
A) $175,000
B) $165,000
C) $205,000
D) $215,000

Quizplus · Accepted Answer

Cash payments for income taxes are calculated as the income tax expense adjusted for the change in income tax payable. Here, the income tax expense is $175,000. The income tax payable increased from $30,000 to $40,000, indicating that $10,000 of the expense was not paid in cash. Therefore, the cash payments for income taxes are $175,000 - $10,000 = $165,000.

The Following Selected Account Balances Appeared on the Financial Statements