Question

The following selected transactions relate to liabilities of Interstate Farm Implements for December of 2018. Interstate’s fiscal year ends on December 31. Required: Prepare the appropriate journal entries for these transactions. 1. On December 15, received $11,500 from Bradley Farms toward the purchase of a $149,500 tractor to be delivered on January 6, 2019. 2. During December, received $42,000 of refundable deposits relating to containers used to transport equipment parts. 3. During December, credit sales totaled $836,000. The state sales tax rate is 5% and the local sales tax rate is 2%. (This is a summary journal entry for the many individual sales transactions for the period.)

Answer 1

Journal entries for the given transactions include recording an advance payment as unearned revenue, refundable deposits as a liability, and credit sales with appropriate sales tax payable accounts.

Step-by-step explanation:

The question revolves around preparing appropriate journal entries for transactions related to liabilities of a business. Here's how these entries are prepared:

1. For the advance payment received for the tractor, the entry would debit Cash and credit Unearned Revenue (or Customer Deposits) because the tractor has not yet been delivered.
2. Refundable deposits received would also be recorded as a liability until the containers are returned. This entry would debit Cash and credit Refundable Deposits.
3. For the sales made, the entry would require debiting Accounts Receivable for the total amount including sales tax and crediting Sales Revenue for the amount before tax, plus separate credits for State Sales Tax Payable and Local Sales Tax Payable.

For the latter transaction, the calculation would be: $836,000 x 5% = $41,800 for state sales tax, and $836,000 x 2% = $16,720 for local sales tax. With these calculations, the total Accounts Receivable would be $836,000 + $41,800 + $16,720.

Answer 2

Step-by-step explanation:

The journal entries are shown below:

1. Cash A/c Dr $11,500

To Bradley Farm $11,500

(Being Advance received from the Bradley Farm )

2. Bank A/c Dr $42,000

To Deposits A/c $42,000

(Being refundable deposit received)

3. Accounts Receivables A/c Dr $894,520

To Sales Revenue A/c $836,000

To Sales Tax Payable A/c $58,520

(Being credit sales is made including sales tax)

The sale tax payable is computed below:

= Credit sales × state sales tax rate + Credit sales × local sales tax rate

= $836,000 × 5% + $836,000 × 2%

= $41,800 + $16,720