Illustrate the effects on the accounts and financialstatements of recording the
ID: 2457674 • Letter: I
Question
Illustrate the effects on the accounts and financialstatements of recording the following selected transactions of LoneStar Leather Co.:
Apr. 15. Paid the first installment of the estimated taxfor the current fiscal year ending December 31, $90,000. Noentry had been made to record the liability.
Dec. 31. Recorded the estimated income tax liabilityfor the year just ended and the deferred income tax liability,based on the April 15 transaction and the following data:
Income taxrate 40%
Income before incometax $950,000
Taxable income according to taxreturn $800,000
Assume that June 15 and September 15 installments of$90,000 were also paid.
Explanation / Answer
Apr 15 - paid the installment, but no entry was made. Dec 31 Tax = Taxable income * tax rate = 800,000 * 40 % = 320,000. Journal is Dec 31 Income tax expense Dr 320,000 Deferred incometaxliability 50,000 Income taxespayable 270,000 ( Record of income tax expense and the liabilities ( 90,000*3 =270,000 is tax payable and the remaining of 50,000 is a deferredtax liability to be paid next year). Dec 31 Journal to record the installment payments. Income tax payable Dr 270,000 Cash 270,000