Question

A closing is March 5 for a rental property with an annual tax bill of $2800. Calculate and show the debit and credits for the tax proration between the buyer and seller using the 365 day method, the day of closing belongs to the buyer.

Answer 1

Answer:

The debit and credits for the tax proration will be as follows:

Debit seller for $483.29; and Credit buyer for $483.29.

Step-by-step explanation:

The assignment of how much is owed to the responsible party is the major reason of a proration.

For the days owned by the seller, the buyer needs money from the seller since the buyer will pay the taxes at end of the year.

Amount per day = Annual tax bill / 365 = $2800 / 365 = $7.67

Total number of days from January 1 to a day before March 5 = Number of days in January + Number of days in February + Number of days from March 1 to March 4 = 31 + 28 + 4 = 63

Amount the seller owes for the time he owned = Amount per day * Total number of days from January 1 to a day before March 5 = $7.67 * 63 = $483.29

Therefore, the debit and credits for the tax proration will be as follows:

Debit seller for $483.29; and Credit buyer for $483.29.