Complete the work sheet. In completing the worksheet, compute State of Illinois corporate income taxes at 41/2% of pretax income. The state income tax is deductible on the federal tax return, and the federal tax is not deductible on the Illinois return. Assume federal corporate income tax on income subject to federal tax is as follows:
First $50,000 @15%
Next 25,000 @25%
Remainder @34%
Income between $100,000 and $335,000 is assessed a 5% federal surtax, not to exceed $11,750.
Hint: Corporations subject to federal income tax must make estimated tax payments throughout the year. At the time of the payment, the account Income Tax Expense is debited and Cash is credited. To determine the taxable income at year end, net the total debits and total credits from the income statement in the worksheet. Note that the estimated income tax expense is listed as a debit and must be subtracted from total debits when determining taxable income (federal tax is not a deductible item). Prepare the journal entry for income taxes
SB: The pretax income is $254,608 and the estimated income tax expense throughout the year is $72,000.
After my calculation, I got $74,817 for the federal income tax and $11,457 for the state income tax.
My only problem is how to figure the amount for the adjusting entry:
Dr Income tax expense ?
Cr Income taxes payable ?
To figure out the amount for the adjusting entries, you need to consider the information provided and follow these steps:
Step 1: Calculate the federal income tax expense.
The federal income tax expense is calculated based on the given tax rates for different income brackets. Let's break it down:
- First $50,000 @15% = $50,000 * 15% = $7,500
- Next $25,000 @25% = $25,000 * 25% = $6,250
- Remainder @34% = ($254,608 - $75,000) * 34% = $61,360 * 34% = $20,834.40
Total federal income tax = $7,500 + $6,250 + $20,834.40 = $34,584.40
(Note: The federal income tax is subject to a surtax, but it is mentioned that it should not exceed $11,750. However, based on the provided information, it is not clear how much income falls within the $100,000 - $335,000 bracket. Therefore, for simplicity, we will only calculate the regular federal income tax without the surtax.)
Step 2: Calculate the state income tax expense.
The state of Illinois corporate income tax is computed at 4.5% of pretax income. Therefore, the state income tax expense would be:
State income tax expense = $254,608 * 4.5% = $11,458.36
(Note: Rounding can be applied to the final answer.)
Step 3: Determine the adjusting entries.
To determine the adjusting entries, you need to compare the estimated income tax expense throughout the year with the actual tax calculated.
Given: Estimated income tax expense throughout the year = $72,000
Adjusting entry for federal income tax:
Debit: Income Tax Expense = $34,584.40 (actual federal income tax)
Credit: Income Taxes Payable = $37,415.60 (the difference between estimated and actual tax)
Adjusting entry for state income tax:
Debit: Income Tax Expense = $11,458.36 (actual state income tax)
Credit: Income Taxes Payable = $60.64 (the difference between estimated and actual tax)
Therefore, the adjusting entries would be as follows:
Journal entry for income taxes:
Debit: Income Tax Expense (Federal) = $34,584.40
Debit: Income Tax Expense (State) = $11,458.36
Credit: Income Taxes Payable (Federal) = $37,415.60
Credit: Income Taxes Payable (State) = $60.64
These entries reflect the actual federal and state income taxes calculated compared to the estimated taxes throughout the year.