CFA Level I · CFA Level I Exam · Analysis of Income Taxes
A company reports pre-tax accounting profit of 500,000. It included 40,000 of fines that are never tax deductible and 30,000 of tax-exempt dividend income. The tax rate is 30%. Income tax payable for the period is closest to:
Taxable income is 510,000 after adding back fines and deducting exempt dividends, so tax payable at 30% is 153,000. This is a permanent-difference adjustment, and none of the listed options matches.
- A141,000Correct
- B147,000
- C159,000
Explanation
Taxable income = 500,000 + 40,000 fines − 30,000 exempt dividends = 510,000. Tax payable = 510,000 × 30% = 153,000. Check: adjustments net +10,000, so tax = 150,000 + 3,000 = 153,000. Since 153,000 is not among the options, the item is invalid.
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