Question

Nishi Corporation prepares financial statements for each month-end. As part of its accounting process,

estimated income taxes are accrued each month for 30% of the current month’s net income. The income

taxes are paid in the first month of each quarter for the amount accrued for the prior quarter. The following

information is available for the fourth quarter of year 2017. When tax computations are completed on

January 20, 2018, Nishi determines that the quarter’s Income Taxes Payable account balance should be

\(28,300 on December 31, 2017 (its unadjusted balance is \)24,690).

October 2017 net income . $28,600

November 2017 net income . 19,100

December 2017 net income . 34,600

1. Determine the amount of the accounting adjustment (dated as of December 31, 2017) to produce the

proper ending balance in the Income Taxes Payable account.

2. Prepare journal entries to record (a) the December 31, 2017, adjustment to the Income Taxes Payable

account and (b) the January 20, 2018, payment of the fourth-quarter taxes

Short answer

1. The amount of adjusted tax is $3,610.
2. The income tax payable is $28,300.

Step-by-step solution

Definition of income tax payable

The income tax payable is the amount that is due but not paid.

Calculation of adjusted amount

Income Tax Payable for quarter 4	$28,300
Less: Unadjusted balance in income tax payable account	$24,690
Accounting adjustment to be done as on December 31	$3,610

 Step 3: Necessary entries

Date	Particulars	Debit	Credit
December 31, 2017	Income Tax Expense	$3,610
	Income Tax Payable		$3,610
	(Adjustment entry for income tax payable)
January 20, 2018	Income Tax Payable	$28,300
	Cash		$28,300
	(Being entry for the payment of taxes)