Question

Testbank, Question 32 Angel Eyes Corporation operates on a calendar year basis. The company is in its first year of operations and received annual property tax bill on March 31 for $21,000. The bill is due May 1. Even though the company records adjusting entries on a monthly basis, no entries related to property taxes have been recorded The March 31 entry to record property tax should be 105 O debit property tax expense $5,250 and credit property tax payable $5,250. detit property tax expense $21,000 and credit property tax payable $21,000 debits to prepaid property tax and property tax expense for $15.750 and $5,250, respectively and credits to property tax pay and cash for $15.750 and $5,250, respectively debits to prepaid property tax and property tax expense for IS250 and $5.250, respectively and credit to property tax payable for 21.000 O O

Answer 1

The right option is 4th - "debits to prepaid property tax and property tax expense for $15,750 and $5,250, respectively, and credit to property tax payable for $21,000".

As the company operates on a calendar year basis which means from January to December. Annual property tax is for $21,000. which has been received on March 31. Therefore, to record expense on monthly closing basis, property tax expense for 3 months period will be booked and while the rest will go the prepaid property tax account. Also the tax has not been paid therefore, the whole amount of tax will remain outstanding as property tax payable.

Expense amount = Annual bill amount * 3 months / 12 months = $21,000 * 3 / 12 = $5,250

Prepaid amount = Total bill amount - Expense amount = $21,000 - $5,250 = $15,750.