Question

Listed below are selected transactions of Jian Furniture Store for the current year ending December 31. 1. On December 1, the store purchased for cash two delivery trucks for $70,000. The trucks were purchased in a state that applies a 6% sales tax. 2. On December 10, the store received $2,000 from the local community theater as a deposit to be returned after certain furniture to be used in stage production was returned on January 10. 3. During December, cash and credit card sales totaled $524,000, which includes the 6% sales tax that must be remitted to the state by the fifteenth day of the following month. 4. The store determined it will cost $78,000 to restore the area (considered a land improvement) surrounding one of its parking lots, when the store is closed in 5 years. Jian estimates the fair value of the obligation at December 31 is $61,500.

1. What is the amount that reflects the cost of the trucks?

2. What is the amount recorded as due to customer?

3. What is the amount of sales tax payable?

4. What is the amount of sales?

5. What is the amount of the land improvement?

Answer 1

1. What is the amount that reflects the cost of the trucks?

Cost of trucks = Cash paid + Sales tax paid = $70,000 + ($70,000 x 6%) = $74,200

2. What is the amount recorded as due to customer?

All of the amount deposited by will be recorded as due to customer because it is a security money.

Therefore,

Due to customer = $2,000

3. What is the amount of sales tax payable?

Sales tax payable = $524,000 x 6/106 = $29,660 (rounded up to 0 decimal places. Otherwise the answer is 29,660.40)

4. What is the amount of sales?

Sales = $524,000 - $29,660.40 = $494,340 (rounded up to 0 decimal places. Otherwise the answer is 494,339.60)

5. What is the amount of the land improvement?

Land improvement = $61,500 (Because the obligation is due after 5 years, its present value will be taken as the cost of land improvement.)