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9966 [12]
3 years ago
6

In July 1, 2018, a two-year insurance premium on equipment in the amount of $672 was paid and debited in full to Prepaid Insuran

ce on that date. Coverage began on July 1. At the end of 2018, the unadjusted balance in the Supplies account was $1,000. A physical count of supplies on December 31, 2018, indicated supplies costing $330 were still on hand. On December 31, 2018, YY’s Garage completed repairs on one of Brokeback’s trucks at a cost of $830. The amount is not yet recorded. It will be paid during January 2019. On December 31, 2018, the company completed a contract for an out-of-state company for $8,100 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction. On July 1, 2018, the company purchased a new hauling van. Depreciation for July–December 2018, estimated to total $2,900, has not been recorded. As of December 31, the company owes interest of $530 on a bank loan taken out on October 1, 2018. The interest will be paid when the loan is repaid on September 30, 2019. No interest has been recorded yet. Assume the income after the preceding adjustments but before income taxes was $33,000. The company’s federal income tax rate is 25%. Compute and record income tax expense.
Business
1 answer:
Helen [10]3 years ago
8 0

Answer:

Income tax expense is $8,250. It is recorded by debiting Income tax expense by $8,250 and crediting Income tax payable by $8,250.

Explanation:

The income tax rate is 25%. Income tax is calculated on the taxable income after all other adjustments have been made.

Note that the question gives an income figure of $33,000. This is stated as the <em>income after the preceding adjustments but before income taxes.</em> Hence, this is the amount on which we calculate the income tax expense as follows.

Income tax expense = Taxable income x Income tax rate

                                  = $33,000 x 0.25

                                  = $8,250

The next requirement is to record the income tax expense in the journal. This income tax has not yet been paid by the company. Therefore, an income tax payable liability is created. The journal entry is as follows.

Debit: Income tax expense $8,250

Credit: Income tax payable $8,250

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