Baxter Ltd. has made a total of $ 46,500 in instalments for corporate income tax for calendar 2020, all of which have been debited to Current Tax Expense. At year end, Dec 31, 2020, the accountant has calculated that the corporation's actual tax liability is only $ 43,000. What is the correct adjusting entry to reflect this fact?
A) Dr. Current Tax Expense $ 3,500, Cr. Income Taxes Payable $ 3,500
B) Dr. Income Taxes Payable, $ 3,500, Cr. Current Tax Expense $ 3,500
C) Dr. Income Taxes Receivable $ 3,500, Cr. Current Tax Expense $ 3,500
D) Dr. Current Tax Expense $ 43,000, Cr. Income Taxes Payable $ 43,000

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit Income Taxes Receivable and credit Current Tax Expense for $3,500. This reflects the overpayment of taxes, indicating that the company has a receivable from the tax authority for the overpaid amount.