A-Z Construction Company was organized on May 1 of the current year. On May 2, A-Z Construction prepaid $18,480 to the city for taxes

A-Z Construction Company was organized on May 1 of the current year. On May 2, A-Z Construction prepaid $18,480 to the city for taxes (license fees) for the next 12 months and debited the prepaid taxes account. A-Z Construction is also required to pay in January an annual tax (on property) for the current calendar year of $45,000.

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?


Answers:

a.  Dec. 31 Taxes Expense12,320
Prepaid Taxes12,320
Prepaid taxes expired 
 [($18,480 ÷ 12 months) × 8 months].
31 Taxes Expense45,000
Taxes Payable45,000
Accrued taxes.
b. $57,320 ($12,320 + $45,000)