30. Prism Inc. received the annual property tax bill for $7,500 on March 1. It w

Question

30. Prism Inc. received the annual property tax bill for $7,500 on March 1. It was paid on June 1 and the com pany's year-end is December 31. Prism requires the accountants to record the property taxes once the tax bill is received. The journal entries to record these transactions would be Debit Credit Mar-01 Property Tax Expense 1875 Property Tax Payable 1875 Property Tax Payable Property Tax Expense Prepaid Property tax 1875 2500 3150 Jun-01 Cash 7500 Dec-31 Property Tax Expense 3150 Prepaid Property tax 3150 Debit Credit Mar-01 No record needed 3125 4375 Jun-01 Property Tax Expense Prepaid Property tax Cash 7500 Dec-31 Property Tax Expense 4375 Prepaid Property tax 4375

Explanation / Answer

Answer

Books will be closed on March 31, so we need to pass the entry for adjusting Jan, Feb Month’s expense.

March 31

Property Tax Expense ($7,500 * 2/12 Months)

1,250

Property Tax payable

1,250

Now we have paid the tax on June 1, so are required to pay the outstanding above rent and Rent from March to May Month. And We have already paid the rent for remaining year, so it is prepaid rent from June to Dec. month

June 01

Property Tax Expense ($7,500 * 3/12 Months)

1,875

Property Tax payable

1,250

Prepaid Property Tax($7,500 * 7/12 Months)

4,375

Cash

7,500

Now, we need to adjust the prepaid rent in December.

Dec 31

Property Tax Expense

4,375

Prepaid Property Tax

4,375

March 31

Property Tax Expense ($7,500 * 2/12 Months)

1,250

Property Tax payable

1,250

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