If a taxpayer fails to pay his property taxes on time and the city decides to foreclose the property,what accounting entry should the city make?
A)write off the property tax receivable as uncollectible
B)reduce property tax revenues by the amount of the receivable
C)reclassify the property tax receivable account to a delinquent receivable account
D)reclassify the property tax receivable account to a tax lien receivable account

Question

Quizplus · Accepted Answer

When a property owner fails to pay property taxes on time, the city can place a tax lien on the property. This means the city has the right to foreclose on the property and sell it to recover the unpaid taxes. To account for this process, the city should reclassify the property tax receivable account to a tax lien receivable account. This reflects that the city has a claim on the property and is in the process of collecting the outstanding taxes through foreclosure. Option A is incorrect because the city has not yet determined that the receivable is uncollectible. Option B is not accurate because it implies that the city has already recognized the revenue, but it has been reduced. Option C could be a valid option, but it does not reflect the specific nature of the receivable (i.e., it is a tax lien).

If a Taxpayer Fails to Pay His Property Taxes on Time