# 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?

 Solution: 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 =\$42,320
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