Question

On July 1, the first day of its fiscal year, the Town of Falkville levied a $1,000,000 property tax which is payable in full on December 1 of the same year. On September 15, the town decided to borrow $200,000 in 90-day tax anticipation notes to cover operating expenditures until the tax revenues are collected. The journal entry on September 15 to record the issuance of tax anticipation notes will include

a. A credit to Tax Anticipation Revenue
b. A credit to Tax Anticipation Notes Payable
c. A credit to Other Financing Sources-Proceeds of Tax Anticipation Notes.
d. For the General Fund journal choice A, and choice C for the governmental activities journal.

Answer 1

The correct accounting entry on September 15 for borrowing $200,000 in tax anticipation notes would include a credit to Tax Anticipation Notes Payable, with a corresponding debit to the cash account.

Step-by-step explanation:

When the town of Falkville decided to borrow $200,000 in 90-day tax anticipation notes to cover operating expenditures, the proper journal entry would include a credit to Tax Anticipation Notes Payable. This reflects the town's obligation to repay the borrowed funds.

The entry would not include a credit to Tax Anticipation Revenue as this title does not accurately represent a liability or an inflow of cash. Similarly, a credit to Other Financing Sources-Proceeds of Tax Anticipation Notes aligns more with government-wide activities reporting and not the fund-based accounting that would be found in the General Fund journal. Therefore, the correct answer is b. A credit to Tax Anticipation Notes Payable, which would be coupled with a debit to a cash account reflecting the increase in cash due to the borrowing.