Question

Property Tax Transactions On March 15, the town of Endicott levied property taxes of $35,000,000 . Based on past experience, town management estimated that the town will not collect 3 percent of the taxes. Taxes were due September 30, but $9,900,000 was received before that date from taxpayers taking advantage of a 1 percent discount for early payment. Endicott treats discounts given as a reduction of revenues. On December 31, the town's year-end, outstanding taxes totaled $2,000,000 of which $500,000 is expected to be collected during the first 60 days of the new year. Actual expenditures for the year of $33,000,000, paid in cash, equaled appropriations. The budget entry included estimated revenues of $32,000,000. Before the budget entry, the fund balance for the general fund was $5,000,000.00. No taxes receivable existed prior to the current year. Required a. Prepare the journal entries to record the property tax transactions, including any adjusting entries at December 31.

Answer 1

The journal entries for recording the property tax transactions in the town of Endicott involve recognizing levied taxes, accounting for uncollectible amounts, processing early payments with discounts, and year-end adjustments for outstanding and delinquent taxes.

Step-by-step explanation:

Based on the provided information, the following journal entries would be prepared to record the property tax transactions for the town of Endicott:

1. On March 15, when taxes of $35,000,000 are levied:
   Dr. Taxes Receivable - Current $35,000,000
   Cr. Revenues $35,000,000
2. To account for an estimated uncollectible amount of 3%:
   Dr. Allowance for Uncollectible Taxes $1,050,000
   
   (which is 3% of $35,000,000)
   Cr. Revenues $1,050,000
3. For early payments received before September 30, taking into account the 1% discount:
   Dr. Cash $9,801,000
   Dr. Discount on Property Taxes $99,000
   Cr. Taxes Receivable - Current $9,900,000
4. At December 31, to record year-end adjustments for outstanding taxes:
   Dr. Taxes Receivable - Delinquent $2,000,000
   Cr. Taxes Receivable - Current $2,000,000
5. To estimate the collectible portion of delinquent taxes:
   Dr. Allowance for Uncollectible Taxes - Delinquent $1,500,000
   Cr. Allowance for Uncollectible Taxes - Current $1,500,000

The year-end actual expenditures match appropriations, so no additional entry is required for expenditures. The budget entry has been omitted since it is not requested. No previous taxes receivable have been indicated, so no adjustments for prior years are necessary.

Answer 2

Journal entries are prepared to record the levy and collection of property taxes, estimations of uncollectible amounts, discounts provided for early payment, and expenditures in Endicott. These include debits to Taxes Receivable and Expenditures and credits to Revenues-Control and Cash. The estimated uncollectible taxes and discounts are accounted for, along with a comparison to budgeted revenues and actual expenses.

Step-by-step explanation:

On March 15, Endicott levied property taxes totaling $35,000,000. The town estimated that 3% would not be collected. Before the due date of September 30, $9,900,000 was received with a 1% early payment discount. By December 31, $2,000,000 remained outstanding, with $500,000 expected to be collected shortly thereafter. The actual expenditures for the year were $33,000,000.

Journal Entries Required

1. Record the levy of property taxes:

Dr. Taxes Receivable $35,000,000;

Cr. Revenues-Control $35,000,000.

2. Record the uncollectible estimate:

Dr. Allowance for Uncollectibles $1,050,000 (which is 3% of $35M);

Cr. Revenues-Control $1,050,000.

3. Record early payments with discount:

Dr. Cash $9,801,000 (which is 99% of $9,900,000);

Dr. Discounts on Property Taxes $99,000 (1% discount);

Cr. Taxes Receivable $9,900,000.

At year-end, adjust for outstanding taxes and amount expected to be collected:

Dr. Taxes Receivable - Delinquent $2,000,000;

Cr. Taxes Receivable $2,000,000.

4. Then, record the amount expected to be uncollectible:

Dr. Allowance for Uncollectibles $1,500,000 (remaining balance of the $2,000,000);

Cr. Revenues-Control $1,500,000.

5. Record actual expenditures:

Dr. Expenditures $33,000,000;

Cr. Cash $33,000,000.

Adjustments for Budget

To reconcile with the budgeted amount of $32,000,000, an additional entry should reflect the variance:

Dr. Revenues-Control $3,000,000 (which is $35M levy - $1,050,000 uncollectible estimate - $99,000 discount received);

Cr. Budgetary Control $3,000,000. The fund balance is adjusted accordingly.