1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 14-6 Calculating Federal Income Tax and Completing a Work Sheet

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Terms Federal Income Tax Expense Adjustment Corporations anticipating annual federal income taxes of $500.00 or more are REQUIRED to pay ESTIMATED income tax each quarter, April; June; Sept; Dec. The ACTUAL is calculated at the END of the year. Adjustment is made to bring the estimate to an ACTUAL figure 2 LESSON 14-6

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Terms Hobby Shack Estimated Taxes for the year were Debited to Federal Income Tax Expense and Credit to Cash APRIL $4500.00 JUNE$4500.00 SEPT$4500.00 DEC$4500.00 Total Fed Tax Exp: $18,000.00 BEFORE calculating the ADJUSTMENT you must FIRST determine: Net Income Before Federal Income Tax Exp. 3 LESSON 14-6

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning FEDERAL INCOME TAX EXPENSE ADJUSTMENT 4 LESSON 14-6 To Calculate, follow these steps: 1.Complete ALL other adjustments on the work sheet 2.Extend ALL amounts *EXCEPT* Federal Income Tax Expense to the IS and BS Columns 3.On a separate piece of paper, total the work sheet’s Income Statement debit and credit columns 4.Calculate the difference between the Income Statement Debit Column total and the Inc. Statement Credit column total. This difference between the totals of these two income statement columns is the Net Income BEFORE Fed Income Tax Expense

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Determining Federal Income Taxes 5 LESSON 14-6 Don’t Include the Taxes YET!!!!!!!!!!! Total of Income Statement Credit column$500,253.10 Less total of Income Statement Debit column before federal income tax–396,049.91 Equals Net Income before Federal Income Tax$104,203.19

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 14-6 FEDERAL INCOME TAX EXPENSE ADJUSTMENT page 427 Total of Income Statement Credit column$500,253.10 Less total of Income Statement Debit column before federal income tax–396,049.91 Equals Net Income before Federal Income Tax$104,203.19

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 14-6 CALCULATING FEDERAL INCOME TAX page 428 This tax table is provided by the Internal Revenue Service (IRS). Different percentages are applied to different portions of the Net Income to determine the total tax owed

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning CALCULATING FEDERAL INCOME TAX NET INCOME BEFORE FEDERAL INCOME TAX= $104,203.19 $104,203.19 -50,000.00 X.15 = $7,500.00(1 st net income) 54,203.19 -25,000.00 X.25 = $6,250.00(2 nd net income) 29,203.19 -25,000.00 X.34 = $8,500.00(3 rd net income) 4,203.19 -4,203.19 X.39 = $1,639.24(4 th net income) RED $104,203.19 $23,889.24TOTAL FEDERAL TAX 8 LESSON 14-6

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 14-6 FEDERAL INCOME TAX EXPENSE ADJUSTMENT page 427 Federal Income Tax$23,889.24 Less Total of Quarterly Installments–18,000.00 Equals Federal Income Tax Adjustment$5,889.24

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 14-6 1. Calculate the amount of federal income tax expense adjustment. RECORDING THE FEDERAL INCOME TAX ADJUSTMENT 2 3 3 1 1 page 429 2. Total and rule the Adjustments columns. 3. Extend account balances.

11. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 14-6 FEDERAL INCOME TAX EXPENSE ADJUSTMENT page 427 Total of Income Statement Credit column$500,253.10 Less Total of Income Statement Debit Column–419,939.15 Equals Net Income after Federal Income Tax$80,313.95 RE-ADD the Income Statement Columns WITH the Federal Income Tax Adjustments INCLUDED!!!

12. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 12 LESSON 14-6 COMPLETING A WORK SHEET 11 page 430 2 4 3 5 1.Total the Income Statement and Balance Sheet columns. 5.Rule double lines. 4.Calculate the column totals. 3.Extend the net income amount. 2.Calculate and enter the net income after federal income tax. NET INCOME MUST EQUAL

13. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 13 LESSON 14-6 A COMPLETED 8-COLUMN WORK SHEET page 432

14. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 14 LESSON 14-6 A 10-COLUMN WORK SHEET page 434-435 1.Trial balance 4 6 23 5 5.Extend balances 2.Adjustments 3.Extend adjusted balances 4.Total, prove, and rule 6.Calculate net income; total, prove and rule 1 Includes ADJUSTED Trial Balance Columns

15. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Audit Your Understanding 1.In what column is the Income Summary amount extended? 2.To which Balance Sheet column is a net loss amount extended? 3.What extra step is required when a 10-column work sheet is prepared instead of an 8-column work sheet? 15 LESSON 14-6