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recording prepaid income taxes

 
 
L. T. Portella
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      06-25-2003, 05:55 PM
What is the best way of recording prepaid corporate income taxes. Assume
that I make 4 quarterly payments of estimated taxes of say $10 each and then
on December 31 find out that I still owe $5 of income tax with form 1120.
What are the entries that I should pass? Thank you
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John
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      06-25-2003, 11:43 PM
"L. T. Portella" <(E-Mail Removed)> wrote in message news:JmlKa.68450
> What is the best way of recording prepaid corporate income taxes. Assume
> that I make 4 quarterly payments of estimated taxes of say $10 each and

then
> on December 31 find out that I still owe $5 of income tax with form 1120.
> What are the entries that I should pass? Thank you
> (E-Mail Removed)



it's not a "prepaid" item,
if that $5 was in tax expense in the financials, debit tax expense and
credit deferred tax liability.


>
>



 
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L. T. Portella
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      06-27-2003, 02:45 AM
John
The quarterly (march, june, september and december) payments of $10 are not
prepaid taxes? Then what are they and how do I record them on those dates?
As for the $5 I would be inclined to believe that under cash accounting when
the check clears the bank the entry would be: debit income tax expense and
credit the bank account. Is this right?
Thank you




"John" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> "L. T. Portella" <(E-Mail Removed)> wrote in message

news:JmlKa.68450
> > What is the best way of recording prepaid corporate income taxes. Assume
> > that I make 4 quarterly payments of estimated taxes of say $10 each and

> then
> > on December 31 find out that I still owe $5 of income tax with form

1120.
> > What are the entries that I should pass? Thank you
> > (E-Mail Removed)

>
>
> it's not a "prepaid" item,
> if that $5 was in tax expense in the financials, debit tax expense and
> credit deferred tax liability.
>
>
> >
> >

>
>



 
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John
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      06-27-2003, 09:35 AM
"Gernot" <(E-Mail Removed)> wrote in message
> "L. T. Portella" <(E-Mail Removed)> wrote in message

news:<JmlKa.68450
> > What is the best way of recording prepaid corporate income taxes. Assume
> > that I make 4 quarterly payments of estimated taxes of say $10 each and

then
> > on December 31 find out that I still owe $5 of income tax with form

1120.
> > What are the entries that I should pass? Thank you
> > (E-Mail Removed)
>>

> I would suggest the following procedure:
>
> Debit prepaid taxes and credit cash for each payment.
>
> For the interim reporting (period) calculate the estimated current tax
> by using the effective tax rate.
> Debit income tax expense and credit income taxes payable by that
> amount.
>
> At year end adjust the income taxes expense according to your tax
> return (to 45) by debiting income tax expense and crediting income
> taxes payable.
>
> Dec 31 you would find the following balances:
> income tax expense 45
> income taxes payable <45>
> prepaid taxes 40
>
> Net prepaid taxes with income taxes payable to a payable balance
> amounting to credit 5.
>
> Generally you would also consider deferred taxes.
>
> Gernot


I agree with this analysis -- my earlier post was a little short of
explanations !










 
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Ima Goodlay
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      06-27-2003, 08:58 PM
On Fri, 27 Jun 2003 05:35:20 -0400, "John" <(E-Mail Removed)> wrote:

>"Gernot" <(E-Mail Removed)> wrote in message
>> "L. T. Portella" <(E-Mail Removed)> wrote in message

>news:<JmlKa.68450
>> > What is the best way of recording prepaid corporate income taxes. Assume
>> > that I make 4 quarterly payments of estimated taxes of say $10 each and

>then
>> > on December 31 find out that I still owe $5 of income tax with form

>1120.
>> > What are the entries that I should pass? Thank you
>> > (E-Mail Removed)
>>>

>> I would suggest the following procedure:
>>
>> Debit prepaid taxes and credit cash for each payment.
>>
>> For the interim reporting (period) calculate the estimated current tax
>> by using the effective tax rate.
>> Debit income tax expense and credit income taxes payable by that
>> amount.
>>
>> At year end adjust the income taxes expense according to your tax
>> return (to 45) by debiting income tax expense and crediting income
>> taxes payable.
>>
>> Dec 31 you would find the following balances:
>> income tax expense 45
>> income taxes payable <45>
>> prepaid taxes 40
>>
>> Net prepaid taxes with income taxes payable to a payable balance
>> amounting to credit 5.
>>
>> Generally you would also consider deferred taxes.
>>
>> Gernot

>
>I agree with this analysis -- my earlier post was a little short of
>explanations !
>
>


-----

I don't agree with you guys.

Debit income tax expense and credit income taxes payable through the
year until you have accrued 45 in tax expense.

Debit income taxes payable and credit cash for all of the quarterly 10
payments.

Your balance sheet will thus show net taxes payable of 5 on Dec 31 and
your income statement 45 in tax expense for the year. Perfect reality.

For kicks, change the example. Assume actual taxes for the year are
30. You should therefore accrue 30. You paid in 40 as before and so
have overpaid by 10. Therefore do a Dec 31 entry to credit net taxes
payable and debit prepaid taxes for 10.

Your balance sheet will thus show net taxes payable of 0 and prepaid
taxes of 10 on Dec 31. Your income statement will show 30 in tax
expense for the year. Perfect reality.



Ima Goodlay
 
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L. T. Portella
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      06-28-2003, 04:44 AM
Ima
Your analysis convinced me. Very clear and as you put it: "perfect reality".
Thank you.
++++++++++++++++++++++


"Ima Goodlay" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> On Fri, 27 Jun 2003 05:35:20 -0400, "John" <(E-Mail Removed)> wrote:
>
> >"Gernot" <(E-Mail Removed)> wrote in message
> >> "L. T. Portella" <(E-Mail Removed)> wrote in message

> >news:<JmlKa.68450
> >> > What is the best way of recording prepaid corporate income taxes.

Assume
> >> > that I make 4 quarterly payments of estimated taxes of say $10 each

and
> >then
> >> > on December 31 find out that I still owe $5 of income tax with form

> >1120.
> >> > What are the entries that I should pass? Thank you
> >> > (E-Mail Removed)
> >>>
> >> I would suggest the following procedure:
> >>
> >> Debit prepaid taxes and credit cash for each payment.
> >>
> >> For the interim reporting (period) calculate the estimated current tax
> >> by using the effective tax rate.
> >> Debit income tax expense and credit income taxes payable by that
> >> amount.
> >>
> >> At year end adjust the income taxes expense according to your tax
> >> return (to 45) by debiting income tax expense and crediting income
> >> taxes payable.
> >>
> >> Dec 31 you would find the following balances:
> >> income tax expense 45
> >> income taxes payable <45>
> >> prepaid taxes 40
> >>
> >> Net prepaid taxes with income taxes payable to a payable balance
> >> amounting to credit 5.
> >>
> >> Generally you would also consider deferred taxes.
> >>
> >> Gernot

> >
> >I agree with this analysis -- my earlier post was a little short of
> >explanations !
> >
> >

>
> -----
>
> I don't agree with you guys.
>
> Debit income tax expense and credit income taxes payable through the
> year until you have accrued 45 in tax expense.
>
> Debit income taxes payable and credit cash for all of the quarterly 10
> payments.
>
> Your balance sheet will thus show net taxes payable of 5 on Dec 31 and
> your income statement 45 in tax expense for the year. Perfect reality.
>
> For kicks, change the example. Assume actual taxes for the year are
> 30. You should therefore accrue 30. You paid in 40 as before and so
> have overpaid by 10. Therefore do a Dec 31 entry to credit net taxes
> payable and debit prepaid taxes for 10.
>
> Your balance sheet will thus show net taxes payable of 0 and prepaid
> taxes of 10 on Dec 31. Your income statement will show 30 in tax
> expense for the year. Perfect reality.
>
>
>
> Ima Goodlay



 
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Ima Goodlay
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      06-28-2003, 06:41 AM
On Sat, 28 Jun 2003 04:44:57 GMT, "L. T. Portella"
<(E-Mail Removed)> wrote:

>Ima
>Your analysis convinced me. Very clear and as you put it: "perfect reality".
>Thank you.
>++++++++++++++++++++++
>


You are welcome.


Ima Goodlay
 
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