Question

you and several classmates are studying for yhe next accounting exam. They ask you to answer the following questions.

1. If cash is borrowed on a $166,120, a 9-month, 6% note on August 1, how much interest expense would be incurred by December 31.

2. The cash register total including sales tax is $52,000, and the sales tax is 5%, What is the sales tazes payable?

3. If $54,060 is collected in advance on November 1 for 6-month magazine subscriptions, what amount of subscription revenue should be recognized by December 32?

Answer 1

SOLUTION : 1
	Cash Borrowed as on August 01=	$          1,66,120
	Period of Bond =	9 Month
	Period expired as on December, 31 = (August 01 to December 31)	5 Months
	Rate of interest =	6%
	Interest Expenses incurred by December 31= $ 166,120 X 6% X 5 month / 12 month =	$                4,153
	Answer = $ 4,153
SOLUTION : 2
	Sales = 100% + Sales tax Payable 5% = Total including sales tax payable = 105%
	So , Sales tax payable =
	Total Sales including sales tax @ 5% =	$              52,000
	Sales Value = $ 52,000 X 100 / 105=	$              49,524
	Sales Tax Payable = ($ 52,000 - $ 49,524)	$                2,476
	Answer = Sales tax payable = $ 2,476(Round off)
SOLUTION : 3
	Total Advance is collected =	$              54,060
	Collected for period =	6 Months
	1 Month subscriptions fees = $ 54,060 / 6 Month =	$                9,010
	Total period expired till December 31 = November & December =	2 Months
	Subscription Revenue = 2 Months X Subscption revenue per month
	Subscription Revenue = 2 Month X $ 9,010 =	$              18,020
	Answer = $ 18,020