Question
Winter Gear, Inc. started business on January 1, 20X1. The company uses the income statement approach to estimating bad debts. The company incorrectly used the
Winter Gear, Inc. started business on January 1, 20X1. The company uses the income statement approach to estimating bad debts. The company incorrectly used the actual write-off of the receivable for the recorded bad debt expense in the below income statement.
Credit sales | $678,000 |
Bad debt expense as a percentage of sales | 2% |
Write-off of accounts receivable | $1,000 |
Tax rate | 30% |
Estimated tax payment | $31,000 |
Incorrect income statement, for the year ended December 31:
Sales | $678,000 |
Expenses | 549,200 |
Bad debt expense | 1,000 |
Pretax income | 127,800 |
Tax expense | 38,340 |
Net income | 89,460 |
Assuming estimated tax payment of $31,000 what is ending balance in taxes payable in 20X1 on the balance sheet?
Note: The income statement (book) uses an estimated bad debt expense amount, but the tax return uses the actual write-off amount. Taxes payable is based on the tax return. Complete an M-1 or mini-tax return to determine the tax liability. Don't forget about the estimated tax payment.
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