Olympic Sports Wear estimates its Annual Federal Income tax as $10,000. It has paid the tax in four installments of $2,500 each. However, at the end of the year, the actual tax amount is $11,200.
Therefore, the company needs to pay $1,200 to the government.
Instruction: Prepare the adjusting journal entry
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To prepare the adjusting journal entry for the additional tax amount of $1,200, you will need to make the following entry:
1. Debit: Income Tax Expense - $1,200
Credit: Income Tax Payable - $1,200
Explanation:
1. Debit: You increase the Income Tax Expense account to reflect the additional tax expense that Olympic Sports Wear needs to pay. Enter $1,200 in the debit column.
2. Credit: You increase the Income Tax Payable account to reflect the additional amount owed to the government. Enter $1,200 in the credit column.
After making this adjusting entry, the Income Tax Expense account will show a total of $11,200 (initial estimate of $10,000 + additional $1,200), and the Income Tax Payable account will also show a balance of $11,200. This will accurately reflect the company's tax liability at the end of the year.