Question

The Town of Ashland levied property taxes in the amount of $800,000. The town estimates that 1% will be uncollectible. The journal entry to record the tax levy will include:

Answer 1

The Town of Ashland will record a journal entry for property taxes levied that includes debiting Property Tax Receivable for $800,000 and crediting Property Tax Revenue, with an additional entry to account for uncollectible taxes.

Step-by-step explanation:

The journal entry to record the property tax levy by the Town of Ashland, where property taxes have been levied in the amount of $800,000 and 1% is estimated to be uncollectible, would include a debit to Property Tax Receivable for the full amount of $800,000 and a credit to Property Tax Revenue for the same amount. Additionally, there would be a debit to Allowance for Uncollectible Accounts representing the estimated uncollectible amount (1% of $800,000, which is $8,000), and a credit to a contra asset account like Allowance for Doubtful Accounts for the $8,000.

This accounts for the expectation that not all taxes levied will be collected, reflecting a more realistic financial picture. The uncollectible percentage is based on historical data and economic conditions. In accounting, this practice aligns with the conservatism principle, acknowledging potential losses sooner rather than later.