Based on its income for the month, Bates Company estimates that it will owe $23,000 of federal income taxes for the month of May. What is the effect of the adjustment on the financial statements?
A) Increase stockholders' equity
B) Increase income taxes expense
C) Increase retained earnings
D) Decrease income taxes payable

Question

Quizplus · Accepted Answer

The adjustment will increase the income taxes expense, as the company estimates that it will owe $23,000 of federal income taxes for the month of May. This will result in a decrease in net income, and subsequently, retained earnings.

Based on Its Income for the Month, Bates Company Estimates