Question

Coronado Company does not ring up sales taxes separate from the cash register. Total receipts for February amounted to $42,800, and the sales tax rate is 8%. What should the company record as sales tax collected?

A) $3,424
B) $4,280
C) $3,424.50
D) $4,280.50

Answer 1

To calculate the sales tax collected, first convert the 8% tax rate to a decimal (0.08), and use the formula to isolate the Price of Goods Sold from the total receipts. The correct sales tax collected is $3,424, or option A.

Step-by-step explanation:

To calculate the sales tax collected by Coronado Company, we need to separate the amount of sales tax from the total receipts that include the sales tax. The sales tax rate is 8%, which we first convert to a decimal by dividing by 100, resulting in 0.08. To isolate the sales tax, we use the formula:

Total Receipts = Price of Goods Sold + (Price of Goods Sold × Sales Tax Rate)

Rearranging this formula to solve for the Price of Goods Sold gives:

Price of Goods Sold = Total Receipts / (1 + Sales Tax Rate)

Inserting the numbers:

Price of Goods Sold = $42,800 / (1 + 0.08) = $42,800 / 1.08

Conducting the division provides the sales without tax, and then we can find the sales tax by subtracting the Price of Goods Sold from the Total Receipts:

Sales Tax Collected = Total Receipts - Price of Goods Sold = $42,800 - ($42,800 / 1.08)

After carrying out the calculations, we find that the sales tax collected amounts to $3,200, confirming option A) $3,424 as the correct answer.