Students Will Provide The Journal Entry To Record The 632133

Students Will Provide The Journal Entry To Record the Monthly Property

Students will provide the journal entry to record the monthly property tax accrual, to record the payment of the taxes, and to record the monthly adjusting entry at the end of the month. Sammy Company is located in a county that assesses property for tax purposes on July 1 for the period July 1–June 30. The tax rate is not determined until October 15, and the tax bills are mailed October 22 with payment due by December 31. For the prior fiscal year, the Sammy Company paid $22,500. The tax bill for the current fiscal year (July 1, 2014–June 30, 2015) is received on October 28, and property taxes have increased to $22,838.

The company pays this amount on October 31. Complete the following: Record the monthly property tax accrual that is recorded in July 2014. Record the payment of the taxes on October 31. Record the monthly adjusting entry on October 31. According to generally accepted accounting principles (GAAP), discuss how current liabilities should be classified.

Provide an example of each, and discuss how current liabilities are valued at the balance sheet. Please submit your assignment. For assistance with your assignment, please use your text, Web resources, and all course materials.

Paper For Above instruction

The accurate recording of property taxes is a crucial aspect of financial accounting, especially for businesses like Sammy Company that operate in jurisdictions with varying tax assessment schedules. This paper will detail the necessary journal entries for accruing property taxes on a monthly basis, recording payment upon receipt of the tax bill, and adjusting entries at month-end. Additionally, it will explore the classification and valuation of current liabilities in accordance with GAAP.

1. Journal Entry to Record the Monthly Property Tax Accrual in July 2014

Since property taxes are assessed annually but paid in installments or upon receipt of the bill, companies must accrue estimated taxes monthly to match expenses with the period they relate to. For July 2014, the accrual should be based on the prior year's taxes, considering the increase in the current year's amount.

The prior year's paid amount was $22,500, and the current year's estimated taxes are $22,838. Assuming a proportional accrual, the monthly property tax expense for July 2014 can be estimated by dividing the total annual amount by twelve months:

Accrued property tax expense for July 2014 = $22,838 / 12 ≈ $1,903.17

The journal entry on July 31, 2014, would be:

Dr. Property Tax Expense           $1,903.17
Cr. Property Tax Payable           $1,903.17

This entry recognizes the expense in July, even though the actual bill will be received later.

2. Journal Entry to Record the Payment of the Taxes on October 31

When the tax bill is received and paid, the company must record the payment, removing the liability from books and recognizing any cash outflow.

The actual tax bill received is $22,838, and the company pays this amount on October 31. The journal entry is:

Dr. Property Tax Payable           $22,838
Cr. Cash                           $22,838

This entry satisfies the liability recognized earlier and shows the cash payment, aligning with the actual transaction date.

3. Monthly Adjusting Entry on October 31

As of October 31, the company should adjust the accrued property tax liability to match the actual bill received, avoiding overstatement or understatement of liabilities. The adjustment involves reversing the estimated accrual and recording the actual amount paid.

The initial accrual for July through September was based on an estimate. Therefore, at October 31, the company should adjust the liability to $22,838, requiring a journal entry that reflects the difference between accrued and actual taxes:

Dr. Property Tax Payable          $w (the remaining balance after paying the bill and the initial accrual, if necessary)
Cr. Property Tax Expense          $w

However, since the entire tax amount was accrued in July, and the bill is now received and paid, the main adjustment is recording the actual amount paid, which has been already reflected in the Property Tax Payable account. The company ensures the liability is accurately reflected and settled.

4. Classification and Valuation of Current Liabilities under GAAP

According to GAAP, current liabilities are obligations that are due within one year or within the company's operating cycle, whichever is longer. They are classified as a part of the company's short-term obligations and are critical to evaluating the company's short-term liquidity.

Examples of current liabilities include accounts payable, accrued expenses, short-term loans, and taxes payable. Each of these obligations is precisely valued at the end of the accounting period based on the amount required to settle the liability, which is usually the outstanding balance on bills or invoices, or estimated amounts for accrued expenses.

For instance, taxes payable are valued at their exact amount as billed or accrued, reflecting the actual amount owed. This valuation process involves recording the liability at the best estimate of the amount payable, and adjustments are made as more precise information becomes available. Accurate valuation of current liabilities ensures that the financial statements provide a fair view of the company's liquidity position and financial health.

Furthermore, GAAP mandates that current liabilities must be disclosed clearly in the balance sheet, often under a separate section titled 'Current Liabilities,' facilitating users' assessment of the company's ability to meet its short-term obligations (Kieso, Weygandt, & Warfield, 2019).

Conclusion

Proper recording and classification of property taxes as current liabilities exemplify adherence to GAAP principles, ensuring transparent financial reporting. Accurate accruals, timely payments, and regular adjusting entries are vital for reflecting the company's liability position accurately. Recognizing and valuing current liabilities correctly aids stakeholders in assessing financial stability and liquidity.

References

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