Answer to Question #47163 in Finance for Felisia Fitri Anita

Question

Northwest Financial Services was organized on April 1 of the current year. On April 2,
Northwest prepaid $4,500 to the city for taxes (license fees) for the next 12 months and
debited the prepaid taxes account. Northwest 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 $21,375.
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.
b. What is the amount of tax expense for the current year?

Answer 1

Northwest Financial Services was organized on April 1 of the current year. On April 2, Northwest prepaid $4,500 to the city for taxes (license fees) for the next 12 months and debited the prepaid taxes account. Northwest 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 $21,375.
a. 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 will be:
credit cash 21375 and debit prepaid taxes 21375.
Then journal then credit prepaid taxes, and debit tax expenses 21375 at the end of the month.
b. The amount of tax expense for the current year will be $375 a month from prepaid licensing fee's to licensing expenses a month.