Question

Music Media Ltd. prepares statements quarterly Part A: Required: 1. Based on 2019 results, Music's estimated tax liability for 2020 is $318,960. Music will accrue 1/23 of this amount at the end of each month (assume the installments are paid the next day). Prepare the entry on January 31, 2020, to accrue the tax liability and on February 1 to record the payment

Answer 1

Answer:

Part - A.

1.

JOURNAL ENTRY:

On January 31, 2020.

Accrue Tax Liability.

Debit: Income Tax Expense A/C $ 13,868*

Credit: Income Tax Liability A/C $ 13,868*

(Being Recording of Accrued Tax Liability for the month of January 2020.)

*WORKING:

Music's Estimated Tax Liability for 2020 is $ 318,960. (Given).

Music will accrue 1/23 of Estimated Tax Liability at the end of each month in the year 2020. (Given).

Accrued Tax Liability Each Month that is January to November.

$ 318,960 × 1/23 [GIVEN]

$ 13,867.83 Per Month.

$ 13,868 (Round Off) Per Month.

JOURNAL ENTRY:

On February 1 2020.

Payment of Tax Liability.

Debit: Income Tax Liability A/C $ 13,868.

Credit: Cash/Bank A/C $ 13,868.

(Being Recording of Tax Payment for Income Tax Liability Accrued in the Month of January 2020.)

NOTE: Accrued Tax Liability for Month is Paid on Next day after the end of the month.So, $ 13,868 is Paid on February 1 2020 which is Accrued on January 31 2020.

2.

As Mentioned in Question tax Accrual & Payment is recorded for 11 Months at $ 13,868 Per Month that is $ 318,960 × 1/23.

JOURNAL ENTRY:

On December 31, 2020.

Accrue Tax Liability.

Debit: Income Tax Expense A/C $ 171,872.**

Credit: Income Tax Liability A/C $ 171,872**

(Being Recording of Remaining Accrued Income Tax Liability in Month of December 2020.)

**WORKING:

Actual Income Tax for 2020 = $ 324,420 (Given).

Accrued Income Tax Liability till Date = Accrued Income Tax Liability Per Month × Number of Month

$ 13,868 × 11

$ 152,548.

Accrued Income Tax Liability in Month of December 2020.

Actual Income Tax for 2020 (-) Accrued Income Tax Liability till Date.

$ 324,420 (Given) (-) $ 152,548 (Calculated).

$ 171,872.

JOURNAL ENTRY:

On January 1, 2021.

Payment of Tax Liability.

Debit: Income Tax Liability A/C $ 171,872.

Credit: Cash/Bank A/C $ 171,872.

(Being Recording remaining of Tax Payment for Year 2020.)

NOTE: Accrued Tax Liability for December Month will be Paid on Next Day After end of December. So, $ 171,872 is Paid on January 1 2021.