A business has a corporate income tax rate of 40%.It has made no tax payments for the year 2017.The taxes have to be paid at the end of the first quarter of 2018.Based on the following accounting data for the year-end December 31,2017,which of the following would be the adjusting entry required to be made on December 31,2017 for the taxes? $$\begin{array} { | l | r| }
\hline \text { Revenues } & \mathbf { \$ 1 , 1 3 5 , 0 0 0 } \
\hline \text { Rent Expense } & \mathbf { \$3 4 0 , 0 0 0 } \
\hline \text { Interest Expense } & \mathbf { \$ 5 7 , 0 0 0 } \
\hline \text { Salary and Wages Expense } & \mathbf { \$ 2 3 0 , 0 0 0 } \
\hline \text { Depreciation Expense } & \mathbf { \$ 2 5 6 , 0 0 0 } \
\hline \text { Dividends Declared } & \mathbf { \$ 5 4 , 0 0 0 } \
\hline
\end{array}$$

Question

A business has a corporate income tax rate of 40%.It has made no tax payments for the year 2017.The taxes have to be paid at the end of the first quarter of 2018.Based on the following accounting data for the year-end December 31,2017,which of the following would be the adjusting entry required to be made on December 31,2017 for the taxes? $$\begin{array} { | l | r| } 
\hline \text { Revenues } & \mathbf { \$ 1 , 1 3 5 , 0 0 0 } \
\hline \text { Rent Expense } & \mathbf { \$3 4 0 , 0 0 0 } \
\hline \text { Interest Expense } & \mathbf { \$ 5 7 , 0 0 0 } \
\hline \text { Salary and Wages Expense } & \mathbf { \$ 2 3 0 , 0 0 0 } \
\hline \text { Depreciation Expense } & \mathbf { \$ 2 5 6 , 0 0 0 } \
\hline \text { Dividends Declared } & \mathbf { \$ 5 4 , 0 0 0 } \
\hline
\end{array}$$

Quizplus · Accepted Answer

CTo calculate the income tax expense, first, we need to calculate the taxable income. This is done by subtracting all expenses (except dividends, as they are not an expense but a distribution of profits) from the revenues.$$ \text{Taxable Income} = \$1,135,000 - (\$340,000 + \$57,000 + \$230,000 + \$256,000) = \$252,000 $$The corporate income tax rate is 40%, so the tax expense is:$$ \text{Tax Expense} = 40\% \times \$252,000 = \$100,800 $$The adjusting entry to record the tax expense and liability is:- Debit Income Tax Expense \$100,800- Credit Income Tax Payable \$100,800This matches choice A, which correctly records the expense and the payable. Choice C incorrectly calculates the tax expense.

A Business Has a Corporate Income Tax Rate of 40