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 company's year-end is December 31. Prism requires the accountants to taxes once the tax bill is received. The journal entries to record these transactions would be record the property Debit Credit Mar-01 Property Tax Expense 1875 Property Tax Payable 1875 Property Tax Payable Property Tax Expense Prepaid Property tax Jun-01 1875 2500 3150 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

Correct option is (d)

Total property tax is $7,500 annually

Hence, monthly property tax = 7,500/12

= $625

Hence, property tax for January and February = 625 x 2

= $1,250

Property tax of $1,250 was due on March 1.

Hence, entry for this would be on March 1

Property tax expense 1,250

Property tax payable 1,250

Property tax of $7,500 was paid on June 1

Property tax for 3 months of March, April and May = 625 x 3

= $1,875

Hence, prepaid property tax on June 1 = 7,500 - 1,250 - 1,875

= $4,375

Hence, entry on June 1 would be as under:

Property tax payable 1250

Property tax expense 1875

Prepaid property tax 4375

Cash 7500

Entry for adjusting prepaid property tax on December 31 would be as under:

Property tax expense 4375

Prepaid property tax 4375

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