Questions: Davis Company began manufacturing operations on January 2, 20X1. During 20X1 Davis reported pre-tax book income of 85,000 and had taxable income of 75,000. Davis had a temporary difference relating to a prepaid asset which will be expensed as follows for book purposes: 20 times 2 7,500 20 times 3 2,500 The enacted tax rates are 21% for 20 times 1 and 20 times 2; and 25% for subsequent years. If Davis paid no estimated taxes, income tax payable at the end of 20X1 is: Multiple Choice 19,250. 25,200. 15,570. 21,000.

The answer is the first one: \$19,250.

Let's break down the calculation step by step:

1. Determine the taxable income for 20X1:

   • Taxable income for 20X1 is given as \$75,000.

2. Calculate the income tax payable for 20X1:

   • The tax rate for 20X1 is 21%.
   • Income tax payable = Taxable income * Tax rate
   • Income tax payable = \$75,000 * 21%
   • Income tax payable = \$75,000 * 0.21
   • Income tax payable = \$15,750

3. Determine the deferred tax liability:

   • The temporary difference is due to a prepaid asset.
   • The total temporary difference is the difference between pre-tax book income and taxable income.
   • Temporary difference = \$85,000 (pre-tax book income) - \$75,000 (taxable income)
   • Temporary difference = \$10,000

4. Allocate the temporary difference to future years:

   • For 20X2: \$7,500
   • For 20X3: \$2,500

5. Calculate the deferred tax liability for each year:

   • For 20X2: \$7,500 * 21% = \$1,575
   • For 20X3: \$2,500 * 25% = \$625

6. Total deferred tax liability:

   • Total deferred tax liability = \$1,575 + \$625
   • Total deferred tax liability = \$2,200

7. Total income tax expense for 20X1:

   • Total income tax expense = Income tax payable + Deferred tax liability
   • Total income tax expense = \$15,750 + \$2,200
   • Total income tax expense = \$17,950

However, the question asks for the income tax payable at the end of 20X1, which is just the current tax payable without considering the deferred tax liability.

Therefore, the correct answer is: The answer is the first one: \$19,250.