Question

In: Accounting

On March 15, Calloway, Inc., paid property taxes of $500,000 for the calendar year. 17. Required...

On March 15, Calloway, Inc., paid property taxes of $500,000 for the calendar year.

17.

Required information

How much of this expense should Calloway’s income statement reflect for the quarter ending March 31?

$0.

$125,000.

$41,667.

$500,000.

18.

Required information

The journal entry at March 15 to record the payment of property taxes would include which of the following?

A debit to Property Tax Expense of $500,000.

A credit to Cash of $125,000.

A credit to Prepaid Property Taxes of $41,667.

A debit to Prepaid Property Taxes of $375,0

Expert Solution

1. Property tax paid for the calendar year = $500,000

Amount that would be recorded as expense for quarter ending March 31 is

= $500,000 *1/4

= $125,000

Reasoning:

Date of payment is not relevant as the expense is pertaining to the calendar year and out of the total year, for a quarter the expense would be (Amount paid * 1/4)

2. Journal entry

A Debit to Prepaid property taxes of $375,000

Assuming property tax expense is recorded at the beginning of every month, following entry will come on payment on Mar 15. At the beginning of Jan, Feb and March month entry would have been (Debit Property tax expense, Credit Property tax payable for 500,000/12 = 41,667). For 3 months payable would have accrued to 41,667*3 =125,000. Hence on payment the following entry would have been recorded

Mar-15	Prepaid property tax a/c Dr	3,75,000
	Property tax payable a/c Dr	1,25,000
	To Cash		5,00,000

ekkarill92 answered 2 years ago

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