Question

A city "piggy-backs" its 3 percent sales tax on top of the state sales tax. During calendar year 2022 the state remits $800,000 to the city for sales taxes collected for the city. On January 25, 2023, the state sends the city $300,000 for sales taxes collected in the fourth quarter of 2022. On March 1, the state sends the city $45,000 for sales taxes applicable to 2022, but sent in by late filers. Historically, the state has sent the city about $30,000 every June for sales taxes applicable to previous years that either trickles in from additional late filers or that results from tax audits. The city has a stated policy of treating sales taxes as "available" if received by March 30 of the year after the applicable sales tax year. Based on the foregoing information only, how much should the city recognize as sales tax revenues in its financial statements for the year ended December 31, 2022?

a. $800,000
b. $1,100,000
c. $1,145,000
d. $1,175,000

Answer 1

The city's financial statement for the year ended December 31, 2022, should recognize $1,145,000 as sales tax revenue, which includes all amounts received up to March 30, 2023, as per their stated availability policy.

Step-by-step explanation:

To calculate how much the city should recognize as sales tax revenues in its financial statements for the year ended December 31, 2022, we must consider the city's policy regarding the availability of tax receipts. The city considers sales taxes as 'available' if received by March 30 of the year following the applicable sales tax year. Hence, to determine the correct sales tax revenue for 2022, we add the following amounts: the sum remitted by the state up until March 30, 2023, which includes $800,000 received during the calendar year 2022 and $300,000 received on January 25, 2023, for the fourth quarter of 2022, along with $45,000 received on March 1, 2023, for late filings. The total is $800,000 + $300,000 + $45,000 = $1,145,000.

Considering this, the correct answer to how much the city should recognize as sales tax revenue for 2022 is $1,145,000. This answer aligns with option c. Any revenue that the city expects to receive in June for previous years, even if it historically happens, is not counted in the 2022 financial statement as it is not 'available' by the city's stated policy terms which require the receipt by March 30, 2023.