Question

Adjusting Entries for Prepaid and Accrued Taxes A-Z Construction Company was organized on May 1 of the current year. On May 2, A-Z Construction prepaid $5,760 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 $24,090. 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. If an amount box does not require an entry, leave it blank. License fees Accounts Receivable Cash Property tax Prepaid Expense Prepaid Taxes b. What is th Taxes Expense se for the current year? Taxes Payable Taxes Receivable Taxes Revenue Unearned Taxes

Answer 1

Part a) Journal Entry

Particulars	Debit	Credit
License Fees( Taxes Expense a/c) To Prepaid Taxes a/c (Being prepaid taxes adjusted)	3840	3840
Property Tax (Taxes Expense a/c) To Property Tax Payable ( Being property taxes are adjusted)	24090	24090

Part b) Calculation of License Fees- Tax Expense for current year

= 5760*8/12 =$3840

Total Tax expense for current year = 3840 + 24090 = $27930