Question

LO1 P10-5B. Excise and Sales Tax Calculations Adams Corporation initially records its sales at amounts that exclude any related excise and sales taxes. During May, Adams recorded total sales of $750,000. An analysis of May sales indicated the following: 1. Thirty percent of sales were subject to both a ten percent excise tax and a five percent sales tax. 2. Sixty-five percent of sales were subject only to the sales tax. 3. The balance of sales was for labor charges not subject to either excise or sales tax. Required a. Calculate the related liabilities for excise and sales taxes for May. b. Prepare the necessary journal entry at May 31, to record the monthly payment of excise tas sales tax to the government.

Answer 1

SOLUTION

1.

Particulars	Sales amount (A)	Sales tax (5%)	Excise (10%)
30% of 750,000	225,000	11,250	22,500
65% of 750,000	487,500	24,375	0
5% of 750,000	37,500	0	0
	750,000	35,625	22,500

2.

Date	Accounts titles and Explanation	Debit ($)	Credit ($)
May 31	Excise Tax Payable	22,500
	Sales Tax Payable	35,625
	Cash		58,125
	(To record payment of excise tax and sales tax)