Final answer:
The journal entry to record the payment of taxes by Company B in mid-April, after an initial adjusting entry was made at year-end, would be a debit to Income Tax Payable and a credit to Cash for $22,000. This entry settles the previously recognized tax liability and reflects the cash outflow to the taxing authority.
Step-by-step explanation:
Understanding Corporate Income Taxes and Tax Payment Entries
In 2013, Company B has an Income Before Taxes amounting to $100,000 and a Taxable Income of $110,000 due to a temporary timing difference. Given a 20% tax rate, an adjusting entry for taxes would have been made on December 31, 2013. By mid-April, when Company B pays its taxes for the prior year, an entry is required to record this payment.
The initial step to calculate the tax payable is to apply the tax rate to the taxable income. Since the taxable income is $110,000, applying the 20% tax rate, we get a tax liability of $22,000. An adjusting journal entry at the end of the year would typically credit the income tax expense account and debit the income tax payable account for this amount.
Upon paying the taxes, the journal entry made by Company B in mid-April to record the payment will reduce the liability and reduce cash or bank balances. This would be a debit to the income tax payable account and a credit to the cash or bank account, reflecting the actual payment of the taxes owed.
The journal entry would appear as follows, assuming payments are made using cash:
Credit Cash: $22,000
This entry effectively settles the liability that was previously recognized on the balance sheet and reduces the company's cash by the amount paid to the taxing authority.