Question

A-Z Construction Company was organized on May 1 of the current year. On May 2, A-Z Construction prepaid $18,480 to the city for taxes (license fees) for the next 12 months and debited the prepaid taxes account. A-Z Construction is also required to pay in January an annual tax (on property) for the previous calendar year. The estimated amount of the property tax for the current year (May 1 to December 31) is $45,000.Journalize the two adjusting entries required to bring the accounts affected by the two taxes up to date as of December 31, the end of the current year.

Answer 1

Step-by-step explanation:

The journal entries are shown below:

Taxes expense A/c Dr $12,320

To Prepaid Taxes $12,320

(Being prepaid taxes are adjusted)

Taxes expense A/c Dr $45,000

To Property taxes payable $45,000

(Being property taxes are adjusted)

The prepaid taxes are computed below:

= Prepaid taxes × (number of months ÷ total number of months in a year)

= $18,480 × (8 months ÷ 12 months)

= $12,320

The eight months is calculated from May 1 to December 31