Question

A-Z Construction Company was organized on May 1 of the current year. On May 2, A-Z Construction prepaid $5,040 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 $19,045. a. 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. If an amount box does not require an entry, leave it blank. License fees Property tax b. What is the amount of tax expense for the current year

Answer 1

Answer and Explanation:

a. The two adjusting entries are as follows

On Dec 31

Tax expense Dr $52.50 ($5,040 ÷ 12 × 8)

         To Prepaid taxes $52.50

(Being record license fee expense)

On Dec 31

Tax expense Dr $19,045

        To Property tax payable $19,045

(Being tax expense is recorded)

b. The amount of tax expense for the current year is shown below:

= $52,50 + $19,045

= $19,075.50