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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Property Taxes Family Practice Associates has an estimated property tax liability of $7,200 assessed as of January 1,2019, for the year May 1, 2019, to April 30, 2020. The property tax is paid on September 1, 2019. The property tax becomes a lien against the property on May 1.
Required:
- 1. Prepare the necessary monthly journal entries to record the preceding information for the period from May 1 to September 30, 2019 (assuming actual taxes are the same as estimated).
- 2. What would be the amount of the liability on December 31, 2019?
1.
Prepare the journal entries to record the transactions in the books of Company FPA.
Property Taxes:
The taxes which are imposed by municipal or state government on a property that a company owns are called as property taxes.
Prepare the journal entry to recognize the property tax expenses at May 31 through August 31, 2019 (4 month entries).
| Date | Account titles and explanation | Debit ($) | Credit($) |
| Property tax expenses (1) | 600 | Â | |
| Â | Â Â Â Â Property taxes payable | Â | 600 |
| Â | (To record the property tax expenses of the month) | Â | Â |
Table (1)
Working note (1):
Calculate the property tax expense per month:
- Property tax expenses are an expense account and it decreases the value of stockholders’ equity. Thus, debit property tax expense account with $600.
- Property tax payable is a liability account and it is increased. Thus, credit property tax payable with $600.
Prepare the journal entry to record the payment of property tax on September 1, 2019.
| Date | Account titles and explanation | Debit ($) | Credit($) |
| September 1, 2019 | Property taxes payable | 2,400 | Â |
| Â | Prepaid property taxes (2) | 4,800 | Â |
| Â | Cash | Â | 7,200 |
| Â | (To record the payment of property tax) | Â | Â |
Table (2)
Working note (2):
Determine the amount of prepaid property taxes
2.
Identify the amount of liability that would be as on December 31, 2019.
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