Winter Gear, Inc. business on January 1, 20X1. The company used the actual write-off of the receivable for the recorded bad debt expense in the below income statement. Credit sales $678,000 Bad debt expense as a percentage of sales 2% Write-off of accounts receivable $1,000 Tax rate 30% Estimated tax payment $31,000 Incorrect income statement, for the year ended December 31 Sales $678,000 Expenses 549,200 Bad debt expense 1,000 Pretax income 127,800 Tax expense 38,340 Net income 89,460 2) Assuming estimated tax payment of $31,000 what is taxes payable in 20X1? Taxes payable is a credit balance account, do not use brackets in your solution.

The Differed tax Assets of Winter Gear Inc is $7,340

This is arrived at as actual Tax Payment compared to the Actual Tax liability. The Payment being more than the Actual Liability due the IRS implies we have paid in excess, and thus we have an Asset (upfront Payment) on future tax Liabilities.

Explanation:

Taxes Payable is a function of the Operating Profit of Winter Gear Inc.

And Operating profit (Also referred to as Earnings Before Tax - EBT) is arrived at by deducting from Sales all related expenses as well as Costs of Goods sold and adding other income received within the Period under review

In the case of Winter Gear Inc. related expense charged against sales in arriving at the Business EBT includes Expenses and Bad debt expense.

The attached demonstrates how we arrived at $7,340 being our deferred Tax Asset for the Year

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