Hello I really need help with this assignment please Wicker

Hello,

I really need help with this assignment, please.

Wicker Corporation made estimated tax payments of $6,000 in 2015. On March 12 of 2016, it filed its 2016 tax return showing a $20,000 tax liability and it paid the $14,000 balance at that time. On April 20, 2016 it discovered an error and filed an amended return for 2015 showing a reduced tax liability of $8,000. Prepare a memorandum explaining whether Wicker can base its estimated tax payments for 2016 on the amended tax liability of $8,000 or whether it must use the $20,000 tax liability reported on its original return.

Thank You.

Solution

Memorandum Account Entries :

March month :

Profit & Loss A/c .. Dr to Provision for income tax A/c 6000

(Being provision of estimated tax amount made.)

April :

Provision for income tax A/c..Dr to Bank A/c 6000

(Being payment of estimated amount of tax made.)

The assessee paid 14000 extra tax, we shall pass an entry,

Provision for tax A/c..Dr to Cash A/c 14000

This will show a debit balance of 14000 in our provision A/c.

You have already paid an amount of 20000 in year 2015 and 2016. So, by filing a revised return showing a reduced tax liability of 8000, it counts to receive a refund of 12000

Then, pass an entry as,

Income tax receivable A/c..Dr to Provision for income tax A/c 12000.

(Being entry made for refund receivable and also to nullofy the old provision effect.)

After you receive refund, entry shall be:

Cash A/c .. Dr to Income tax receivable A/c 12000.

Still, we will have a debit balance of 2000 in provision for income tax account. So, next time / year when you make a provision for an amount add that 2000 to nullify that effect and pass entry. Wicker can base its estimated tax payments for 2016 on the amended tax liability, As the revised return steps ahead of original one.