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Adjusting entries for corporate income tax expense

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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 income before taxes is $254,608 and the estimated income tax expense throughout the year is $72,000.
After the 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 I have to journalize for the adjustment:
Dr Income tax expense ???
Cr Income taxes payable ???

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Solution Preview

The tax calculations are correct.

Federal Tax = $74,817
State Tax = ...

Solution Summary

The solution provides the adjusting entries for corporate income tax expense.

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Servo Corporation: journal entries and adjusting entries

Servo Corporation's balance sheet at December 31,2006, is presented below.

Servo Corporation
Balance Sheet
Decemeber 31, 2006
Cash $24,600 Accounts Reveivable $25,600
Accounts Revievable 45,500 Common Stock($10 par) 80,000
Allowance for doubtful accounts (1500) Retained Earnings 127,400
Supplies 4,400
Land 40,000
Building 142,000
Accumulated depreciation-building (22,000)

During 2007, the following transactions occurred.
1. On January 1, 2007, Servo issued 1,500 shares of $20 par, 7% preferred stock for $33,000.
2. On January 1, 2007, Servo also issed 600 shares of the $10 par value common stock for $21,000.
3. Servo performed services for $280,000 on account
4. On April 1, 20007, Servo collected fees of $48,000 in advance for services to be performed from April, 1, 2007, to March 31, 2008
5. Servo collected $267,000 from customers on account.
6. Servo bought $30,100 of supplies on account
7. Servo paid $32,200 on accounts payable.
8. Servo reacquired 400 shares of its common stock on June 1, 2007, for $38 per share
9. Paid other operating expenses of $188,200
10. On December 31, 2007, Servo declared the annual preferred stock dividend and a $1.20 per share dividend on the outstanding common stock, all payable on January 15, 2008.
11. An account receivable of $1,300 which originated in 2006 is written off as uncollectible.
Adjustment data
1. A count of supplies indicates that $5900 of supplies remain unused at year-end.
2. Recorded revenue earned from item 4 above.
3. The allowance for doubtful accounts should have a balance of $3,500 at year end.
4. Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $10,000.
5. The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

Prepare journal entries for the transactions listed above and adjusting entries.

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