Severn Corporation prepares its statement of cash flows using the direct method.Last year,Severn reported Income Tax Expense of $27,000.At the beginning of last year,Severn had a $2,000 balance in the Income Taxes Payable account.At the end of last year,Severn had a $5,000 balance in the account.On its statement of cash flows for last year,what amount should Severn have shown for its Income Tax Expense adjusted to a cash basis (i.e. ,income taxes paid)?
A)$20,000
B)$22,000
C)$24,000
D)$30,000

Question

Quizplus · Accepted Answer

The cash basis income tax expense should be adjusted for changes in the income taxes payable account. At the beginning of the year, Severn had a balance of $2,000 in income taxes payable, and at the end of the year, the balance was $5,000. Therefore, the taxes paid during the year were $27,000 (income tax expense) minus the increase in income taxes payable of $3,000 ($5,000 end balance minus $2,000 beginning balance). This gives an adjusted income tax expense of $24,000 (option C).

Severn Corporation Prepares Its Statement of Cash Flows Using the Direct