Diamond Services was organized on April 1 of the current year. On April 2, Diamo

Question

Diamond Services was organized on April 1 of the current year. On April 2, Diamond Services prepaid $28,800 to the city for taxes (license fees) for the next 12 months and debited the prepaid taxes account. Diamond Services 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 (April 1 to December 31) is $49,800.

Hide Hint(s) 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.

License fees

Property tax

b. What is the amount of tax expense for the current year? $

Explanation / Answer

a.

Entries recorded as under:

b.

Tax expense for the current year is calculated as under:

License taxes $21,600 and property taxes $49,800

Total tax expense is $71,400

Date Particulars L.F Amount ($) Amount ($) Dec-31 Taxes Expense 21,600    Prepaid taxes 21,600 (For prepaid taxes reduced with the amount of license tax due) Dec-31 Taxes Expense 49,800    Payable taxes 49,800 (For property taxes due but not paid)

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