Answered Essay: a-z construction company was organized on May 1 of the current year. On May 2, A-Z Construction prepaid $18,480 to the

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 previous calendar year. The estimated amount of the property tax for the current year (May 1 to December 31) is $45,000.

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.

B.) What is the amount of tax expense for the current year?

Expert Answer


a. Particulars Debit Credit
Taxes (License Fees) Expense $12,320
Prepaid Taxes $12,320
Notes: Accrued monthly license fees = Annual taxes (license fees) / 12 months
= $18,480/12
= $1,540
Total accrued license fees = Months from ( May 1st to 31st December ) x Accrued monthly license fees
= 8 months x $1,540
= $12,320
Particulars Debit Credit
Property Tax Expense $30,000
Property Tax Payable $30,000
Notes: Accrued monthly property taxes = annual tax (on property) / 12 months
= $45,000/12
= $3,750
Total accrued property taxes = Months from ( May 1st to 31st December ) x Accrued monthly property taxes
= 8 months x $3,750
= $30,000
b. Tax expense for the year = $42,320
Working Notes:
Tax expense for the year =Total accrued license fees + Total accrued property taxes
= $12,320 + $30,000
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