Question

Exercise 9-4A Recognizing sales tax payable LO 9-2

The following selected transactions apply to Topeca Supply for November and December Year 1. November was the first month of operations. Sales tax is collected at the time of sale but is not paid to the state sales tax agency until the following month.

1. Cash sales for November Year 1 were $165,000, plus sales tax of 7 percent.
2. Topeca Supply paid the November sales tax to the state agency on December 10, Year 1.
3. Cash sales for December Year 1 were $180,000, plus sales tax of 7 percent.

Required
a. Record the preceding transactions in general journal form.
b. Show the effect of the preceding transactions on a horizontal statements model like the one shown next.
c. What was the total amount of sales tax paid in Year 1?
d. What was the total amount of sales tax collected in Year 1?
e. What amount of sales tax expense will be reported on the Year 1 income statement?

Answer 1

Answer a.

Event Debit Credit 176,550 11,550 165,000 General Journal Cash Sales Tax Payable ($165,000 * 7%) Sales Revenue Sales Tax Payable Cash Cash Sales Tax Payable ($180,000 * 7%) Sales Revenue 11,550 11,550 192,600 12,600 180,000

Answer b.

Assets = + TOPECA SUPPLY Horizontal Statements Model Stockholders' Equity Income Statement Common Retained Revenue Expense Stock Earnings 165000 165000 Event Statement of Cash Flow Cash Liabilities Sales Tax Payable 11550 -11550 12600 Net Income 165000 176550 -11550 192600 176550 -11550 192600 | OA DA OA 180000 | 180000 180000

Answer c.

Sales tax paid in Year 1 is $11,550.

Answer d.

Sales tax collected in Year 1 is $24,150 ($11,550 + $12,600).

Answer e.

Sales tax expense on Year 1 is $0.