Question

Part one:

Grandpa Clocks, Inc. (GCI), is a retailer of wall, mantle, and grandfather clocks. Assume GCI sells a grandfather clock for $18,000 cash plus 3 percent sales tax. The clock had originally cost GCI $14,000. Show the accounting equation effects and prepare the journal entries related to this transaction. Assume GCI uses a perpetual inventory system.

1. Indicate the effects of the amounts for the above transactions. (Enter any decreases to assets, liabilities, or stockholders equity with a minus sign.)

Part two:

Prepare the journal entries related for the above transactions-

1: Record the sales revenue of $18,000 plus 3 percent sales tax.

2:Record the cost of goods sold of $14,000.

Answer 1

1) Accounting equation

	Assets	=	Liabilities	+	Stockholder's equity
1	Cash 18540		Sales tax payable 540		Sales revenue 18000	Sales revenue
2	Inventory -14000				Cost of goods sold -14000	Cost of goods sold

2) Journal entry

No	Account and explanation	Debit	Credit
1	Cash	18540
	Sales revenue		18000
	Sales tax payable		540
2	Cost of goods sold	14000
	Inventory		14000