Question

A-Z Construction Company was organized on May 1 of the current year. On May 2, A-Z Construction prepaid $18,480 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 current calendar year of $45,000.
Required: 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. Refer to the Chart of Accounts for exact wording of account titles. b. What is the amount of tax expense for the current year?

Answer 1

Explanation:

a. The journal entries are as follows

Taxes Expense A/c Dr $12,320

        To Prepaid Taxes A/c $12,320

(Being the tax expense is recorded)

The computation is shown below:

= $18,480 × 8 months ÷ 12 months

= $12,320

Taxes Expense A/c Dr $45,000

     To Property Taxes Payable A/c $45,000

(Being the taxes expense is recorded

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

= $12,320 + $45,000

= $57320