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Benton County includes an independent school district and two individually chartered towns. The County’s Treasurer assesses and collects property taxes on behalf of itself, the school district, and the towns. The County uses a tax collection custodial fund to record tax collections for the school district and towns. During the year ended December 31, 2020, the following transactions took place:

1. The County levied taxes as follows:
- Benton County General Fund: $25,000,000
- School District: $12,500,000
- Towns: $2,500,000
- Total: $40,000,000

2. The property taxes levied were collected.

3. The amounts collected were paid to the school district and towns.

Required:
a. Prepare journal entries for Benton County and the Benton County Independent School District—identify the funds.

Answer :

Final answer:

The journal entries for Benton County and Benton County Independent School District are delineated as per the levy, collection and disbursement of property taxes. For the County, taxes receivable and revenues are affected; later cash is affected when taxes are collected and finally, when disbursed, due to School District/Towns are affected. For the School District, due from County and revenue are affected initially, then cash and due from County are impacted upon receipt of funds.

Explanation:

For Benton County, the entries regarding the levy and collection of taxes could be represented as such:

  1. Debit 'Taxes Receivable—Property tax' for $40,000,000 (This is the total tax levied) and Credit 'Revenues—Property taxes' by an amount matching the debit i.e., $40,000,000. This entry is to account for the total tax levied by the County which includes taxes for the school district and towns.
  2. When the tax monies are collected, Debit 'Cash' and Credit 'Taxes Receivable—Property Tax' by $40,000,000. This accounts for the collection of tax.
  3. When the county disburses the collected amounts to the school district and towns, they will Debit 'Due to School district' and 'Due to Towns' accounts and Credit 'Cash' by the net amounts to be given i.e., $12,500,000 and $2,500,000 respectively.

For the Benton County Independent School District, the entries would be:

  1. Debit 'Due from County' by $12,500,000 and Credit 'Revenues—Property Taxes' by the same amount ($12,500,000) because the school district expects this amount from the property taxes levied by the County.
  2. When the School District receives the funds, it will Debit 'Cash' and Credit 'Due from County' by the $12,500,000.

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