McGraw-Hill - How to Read a Financial Statement

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1、Page58CHAPTER11EXHIBIT—INCOMETAXEXPENSEANDINCOMETAXPAYABLEPage5911—IncomeTaxExpenseandIncomeTaxPayablePage60FederalandStateIncomeTaxationofBusinessProfitPleaserefertoChapter11Exhibit(page58),whichhighlightstheconnectionbetweenincometaxexpenseintheincomestatementan

2、dincometaxpayableinthebalancesheet.Asmallpartofthecompany'stotalincometaxexpensefortheyear,whichisbasedonitstaxableincomefortheyear,hasnotbeenpaidatyear-end.Thisremainingbalancewillbepaidovertothetaxauthoritiesinthenearfuture.Theunpaidportionstaysinthecompany'sinc

3、ometaxpayableliabilityaccountuntilitispaid.Thebusinessinourexampleisincorporated;thebusinessdecidedonthisformoflegalorganization(insteadofthepartnershipformorasalimitedliabilitycompany).Acorporation,beingaseparatepersonintheeyesofthelaw,hasseveralimportantadvantag

4、es.However,profit-motivatedbusinesscorporationshaveoneseriousdisadvantage—theyaresubjecttofederalandstateincometaxontheirprofit.Tobemoretechnical,thebusinessinthisexampleisaregular,or''C''corporation.Underthefederalincometaxlawsmallor"S"corporations,partnerships,a

5、ndlimitedliabilitycompaniesare"pass-through"taxentities—theseentitiespaynoincometaxthemselvesbutinsteadserveasaconduit.Eachyearalltheirtaxableincomeistransferred,orpassedthroughtotheirowners,whopayindividualincometaxontheirsharesofthetaxableincome.Thisavoidswhatis

6、calledthe"doubletaxation"ofbusinessprofit—firstinthehandsofthebusinesscorporationandsecondinthehandsofitsstockholders(totheextentthatnetincomeisdistributedascashdividendstothem).Thefirstpointtokeepinmindisthatabusinesscorporationmustearntaxableincometopayincometax

7、.Thesimplestwaytopaynoincometaxistohavenotaxableincome,ortohaveataxableloss.Ofcourseabusinesswantstoearnprofit,butearningaprofitcomeswiththeburdenofpayingincometaxontheprofit.Onceabusinessenterstheprofitzoneitissubjecttoincometax.Asecondpointtokeepinmindisthatther

8、earemanyloopholesandoptionsinthefederalincometaxcode—tosaynothingaboutstateincometaxlaws—thatreduceorpostponeincometax.Isuspectyou'reawareofhowcomplexis