Question

In january 2004, Horner company paid $80,000 in property taxes on its plant for the calendar year 2004, and in january 2004 Horner estimated that its year and bonus to executives for 2004 would be $320,000. what’s the amount of the expenses reated to these two items that should be reflected in horner’s quarterly income statement for the 3 months ended June 30,2004 (second quarter)?

Answer 1

1	Property Tax paid for calendar year
	Journal Entry
	Property Tax A/c Dr	40,000
	Prepaid Expense - Property Tax A/c Dr	40,000
	Cash A/c		80,000
	Income Statement
	Property Tax a/c	40,000
	Prepaid Expense - Property Tax A/c	40,000
2	Bonus is estimated for calendar year
	Journal Entry
	Bonus Expense A/c Dr	160,000
	Bonus Payable A/c		160,000
	Income Statement
	Bonus Expense A/c	160,000

Note

1. Property tax is paid for entire calendar year i.e. from Jan 2004 to Dec 2004. Cash is paid, but while recording in income statement to show expenses incurred till June 30, 2004 we have to take only 6 months expenses incurred and balance as prepaid expense. Income Statement will reflect the amount as above
2. Bonus is estimated and accrued but payable only at the end of calendar year. Since it is accrued the Bonus expense due till June should be reflected as Bonus Expense in Income Statement. Here we factor only the amount accrued and not paid. Again accrued till June 2004