Reference no: EM131701705

Question: (Accounting for personal income taxes) Saralisa's City, which operates on a calendar year basis, obtains 40 percent of its revenues from personal income taxes. Employers are required to withhold taxes from the earnings of city residents and remit them to the city monthly. City residents must also make payments, if necessary, with quarterly tax estimates. No later than April 15 of the following year, residents must file tax returns, remitting any additional taxes due to the city or claiming refunds of overpayments. Saralisa's accounting policies call for recognizing taxes obtained from income earned during a particular calendar year provided the taxes are received during the year or before April 30 of the following year; income taxes received after April 30 are recognized as revenues of the year in which received. Prepare journal entries to record the following transactions and events related to calendar year 2012:

1. During 2012 Saralisa receives $3,250,000 from personal income taxes withheld by employers during the year and estimates filed by taxpayers during the year.

2. In January 2013, before the financial statements for 2012 are prepared, Saralisa receives $400,000 from employers and taxpayers based on taxpayer earnings during the latter part of 2012.

3. Saralisa's comptroller estimates that the city will receive $55,000 with the 2012 tax returns (due April 15, 2013), as well as requests for refunds totaling $275,000. The comptroller also estimates that $28,000 will trickle in after April 30 with tax returns filed by late filers.