Students Will Provide The Journal Entry To Record The 848281

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: (1-2) pages 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.

Paper For Above instruction

Introduction

Property tax accounting presents a significant aspect of financial reporting, requiring precise journal entries to accurately reflect liabilities and expenses in accordance with Generally Accepted Accounting Principles (GAAP). This paper discusses the journal entries necessary for property tax accruals, payments, and end-of-period adjustments for Sammy Company, along with a discussion on the classification and valuation of current liabilities under GAAP.

Property Tax Accrual and Payment Journal Entries

The accounting process for property taxes involves recording the accrued liability when the company incurs the obligation, making the payment when due, and adjusting the records at period-end to reflect the accurate liability.

Accrual in July 2014

In July 2014, the company should accrue the property tax expense for the period from July 1 to June 30, based on the estimated tax amount. Since the precise tax is not known until October 15, an estimated accrual is used. The estimated property tax expense for July should be recorded as:

```plaintext

Debit Property Tax Expense $1,895

Credit Property Tax Payable $1,895

```

(assuming equal monthly accrual: $22,838 / 12 months = $1,895 approx.)

This entry acknowledges the expense incurred in July, even though the actual tax bill is received later.

Payment of Taxes on October 31

When the company pays the property tax bill on October 31, the payment reduces the liability:

```plaintext

Debit Property Tax Payable $22,838

Credit Cash $22,838

```

This records the settlement of the liability generated by the tax bill received.

Adjusting Entry on October 31

At the end of October, the company receives the actual tax bill. Since prior accrual was based on estimates, an adjustment is necessary to reflect the actual amount:

```plaintext

Debit Property Tax Expense $22,838

Credit Property Tax Payable $1,895

Credit Cash $20,943

```

However, details vary depending on the actual accrued and paid amounts, but typically, the adjustment ensures expenses and liabilities align with the real tax bill.

Classification and Valuation of Current Liabilities under GAAP

According to GAAP, current liabilities are obligations due within one year or within the company's operating cycle, whichever is longer. These liabilities are classified into categories such as accounts payable, salaries payable, taxes payable, and accrued expenses.

Classification of Current Liabilities

- Accounts Payable: Amounts owed to suppliers for goods or services received (e.g., inventory purchases). For example, unpaid invoices for inventory are categorized as accounts payable.

- Salaries and Wages Payable: Employee compensation earned but not yet paid. These are current liabilities because they are due within the normal operating cycle.

- Taxes Payable: Taxes owed to governmental agencies, such as income, property, or payroll taxes, payable within the short term. For example, property taxes accrued but unpaid fall under this category.

Valuation of Current Liabilities

Current liabilities are valued at the amount payable, which is typically the original invoice amount or the settlement amount based on the obligation. For instance, property taxes are recorded at the amount billed or assessed, with subsequent adjustments made for estimated or actual payable amounts.

Conclusion

Proper recording of property tax liabilities involves initial accrual based on estimates, subsequent adjustments upon receipt of actual bills, and actual payment. These steps ensure compliance with GAAP and accurate financial statements. The classification of current liabilities as short-term obligations due within the operating cycle or year provides clarity to users of financial statements about a company's short-term financial health.

References

  1. Bee, L. (2016). Principles of Accounting. Pearson.
  2. FASB Accounting Standards Codification (ASC) 450-20. (2020). Contingencies and Losses.
  3. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.
  4. International Financial Reporting Standards (IFRS). (2018). IAS 1: Presentation of Financial Statements.
  5. Gray, C., & Manson, S. (2014). The Audit Process. Cengage Learning.
  6. Heitger, L. E., & Beasley, M. S. (2008). Understanding Auditing and Assurance Services. McGraw-Hill Education.
  7. AccountingTools. (2021). "Property Tax Expense and Payable." Retrieved from https://www.accountingtools.com
  8. Financial Accounting Standards Board (FASB). (2019). Statement of Financial Accounting Concepts No. 6. Elements of Financial Statements.
  9. Yamane, D. (2017). Advanced Accounting. Cengage Learning.
  10. Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2020). Financial Accounting: A Business Perspective. McGraw-Hill Education.

Related Assignments