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.credit to Proceeds of Tax Anticipation Notes
b.credit to tax anticipation Revenue
c.credit to Tax anticipation Notes Payable
d.credit to Estimated Uncollectible Current Taxes

Answer 1

The correct journal entry to record the issuance of tax anticipation notes by the Town of Falkville on September 15 would be a debit to cash and a credit to Tax Anticipation Notes Payable, representing the inflow of cash and the creation of a liability, respectively. Option d is correct.

Step-by-step explanation:

On September 15, when the town of Falkville decides to issue $200,000 in 90-day tax anticipation notes, the journal entry would include a credit to Tax Anticipation Notes Payable. This represents the obligation to repay the borrowed money.

The debit in this journal entry would typically be to a cash account, reflecting the inflow of cash from the issuance of the notes. Therefore, the correct journal entry to record the issuance of the tax anticipation notes will include:

• Debit: Cash $200,000
• Credit: Tax Anticipation Notes Payable $200,000

Option 'a' is not correct because it does not represent a liability. Option 'b' is incorrect because no revenue is being recognized, it's a financing activity. Lastly, option 'd' does not apply to this transaction as it pertains to the account for estimated uncollectible, not a liability for a note.