Homework Answers
Answer:-
D. 33 1/3% 66 2/3%
When the property was purchased on September 1 the firm received an
allowance for property taxes for the period July 1 - September 1, a
period of two months. This is the portion of the fiscal year the
firm did not own the factory. However, the firm will be responsible
for the taxes for these two months.
Assume that the property assessment says that you will are
responsible for paying $12,000 in property taxes for the fiscal
year ended June (Yr 2). Since you will be paying in 2 equal
installments, that means that $6,000 will be due on November
1
The fiscal year that the property tax assessment covers is July 1-
June 30.
That means the $12,000 should be allocated over each month in
that period = > $12,000 / 12 = $1,000 per month (the matching
principle)
July 31st Journal Entry:
Dr. Property Tax Expense 1,000
Cr. Property Tax Payable 1,000
Aug 31st Journal Entry:
Dr. Property Tax Expense 1,000
Cr. Property Tax Payable 1,000
Sep 30th Journal Entry:
Dr. Property Tax Expense 1,000
Cr. Property Tax Payable 1,000
Oct 31st Journal Entry:
Dr. Property Tax Expense 1,000
Cr. Property Tax Payable 1,000
On November 1st, the $6,000 installment will be paid (6
months of property taxes). However, you've only accrued 4 months or
$4,000 of property tax expense because of the matching principle
($1,000 per month x 4 months). So that means that 2 months or
$2,000 of the payment is pre-paid ($1,000 per month x 2 months)
because you have not incurred expense.
Therefore, the journal entry is the following:
Dr. Property Taxes Payable 4,000 (4 months x 1,000)
Dr. Prepaid Property Taxes 2,000 (2 months x 1,000)
Cr. Cash 6,000
You decrease property taxes payable by $4,000 and you increase
prepaid property taxes by $2,000.
The percentage of the November 1st payment allocated to the
increase in prepaid property taxes is $2,000/$6,000 = 33 1/3%
The percentage of the November 1st payment allocated to the
decrease in property taxes payable is $4,000/$6,000 = 66 1/3%
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