Based on its income for the month,Reel Company estimates that federal income taxes for the month of May will be $11,000.What is the effect of the adjustment on the financial statements?

Question

Quizplus · Accepted Answer

The adjustment results in an increase in income tax expense, as the estimated amount of federal income taxes for the month of May is higher than initially expected. This expense will lower net income and, ultimately, retained earnings. There is no effect on income taxes payable, as this represents taxes that are owed but have not yet been paid, whereas this adjustment is based on an estimate of taxes owed for the current period.

Based on Its Income for the Month,Reel Company Estimates That