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Angel Eyes Corporation operates on a calendar year basis. The company is in its first year of operations and received its annual property tax bill on March 31 for $21,000. The bill is due May 1. Even though the company records adjusting entries on a monthly basis, no entries related to property taxes have been recorded.
-Assuming appropriate adjusting entries were completed for the April month end, what entry should be recorded for the payment on May 1?
A) debit prepaid property tax $21,000 and credit cash $21,000
B) debits to prepaid property tax and property tax expense for $14,000 and $7,000, respectively and credit to cash for $21,000
C) debits to prepaid property tax and property tax payable for $14,000 and $7,000, respectively and credit to cash $21,000
D) debit property tax payable $15,750 and credit to cash $15,750.

Question

Quizplus · Accepted Answer

The adjusting entry at April month end would have debited property tax expense for $7,000 and credited prepaid property tax for $7,000. This means that at the time of payment, the prepaid property tax balance is $14,000 ($21,000 - $7,000). The entry to record the payment would therefore be to debit prepaid property tax for $14,000 and credit cash for $21,000.

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