Question

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. Cash sales for November Year 1 were $64,000, plus sales tax of 6%. Topeca Supply paid the November sales tax to the state agency on December 10, Year 1. Cash sales for December Year 1 were $82,500, plus sales tax of 6%. Required:

a. Record the preceding transactions in general journal form.
b. Show the effect of the preceding transactions in a horizontal statements model.
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

Topeca Supply's sales tax transactions for November and December Year 1 can be recorded in general journal form and shown in a horizontal statements model. The total amount of sales tax paid in Year 1 is $8,790 and the total amount of sales tax collected in Year 1 is also $8,790. The sales tax expense reported on the Year 1 income statement is $8,790.

Step-by-step explanation:

a. General Journal Form:

November Year 1:

1. Cash Sales (Debit) $64,000
2. Sales Tax Payable (Credit) $3,840
3. Sales Revenue (Credit) $67,840

December Year 1:

1. Cash Sales (Debit) $82,500
2. Sales Tax Payable (Credit) $4,950
3. Sales Revenue (Credit) $87,450

b. Horizontal Statements Model:

The effect of these transactions would be an increase in Cash Sales, an increase in Sales Tax Payable, and an increase in Sales Revenue for both November and December Year 1.

c. Total Amount of Sales Tax Paid in Year 1:

The total amount of sales tax paid in Year 1 would be the sales tax paid in November plus the sales tax paid in December. In this case, sales tax of $3,840 was paid in November and sales tax of $4,950 was paid in December. Therefore, the total amount of sales tax paid in Year 1 would be $3,840 + $4,950 = $8,790.

d. Total Amount of Sales Tax Collected in Year 1:

The total amount of sales tax collected in Year 1 would be the sales tax collected on cash sales in November plus the sales tax collected on cash sales in December. In this case, sales tax of 6% was collected on cash sales of $64,000 in November and sales tax of 6% was collected on cash sales of $82,500 in December. Therefore, the total amount of sales tax collected in Year 1 would be 6% of $64,000 + 6% of $82,500 = $3,840 + $4,950 = $8,790.

e. Sales Tax Expense on Year 1 Income Statement:

Sales tax expense represents the amount of sales tax paid to the state agency. In this case, the sales tax paid in November would be reported as a sales tax expense on the November income statement and the sales tax paid in December would be reported as a sales tax expense on the December income statement. Therefore, the total amount of sales tax expense reported on the Year 1 income statement would be $3,840 + $4,950 = $8,790.