Question

The General Fund of the City of Snake River operates on a calendar year basis. It sends bills to property owners on January 2. Taxes are due March 1, but taxpayers are allowed until March 31 to make payment without penalty. Taxpayers who pay before March 1 are allowed to deduct a 1 percent discount. Taxpayers who fail to pay by April 1 are declared delinquent, and notice is sent to them that they owe a penalty of 4 percent of the unpaid taxes. Prepare journal entries to record the following Snake River transactions:

Answer 1

Answer:1) Debit to receivable $994,000.00

Debit to discount allowable $6,000.00

Credit to Tax Revenue $1,000,000

2) Debit to cash $693,000.00

Credit to receivable $693,000.00

Explanation: A revenue is an amount earned and brought into a business by its operations or amount earned by the government.

Discounts are allowable in fund generation inorder to encourage prompt payment. This discount is seen as an expense to the business or government which is matched against the revenue generated.