Question

During December, Far West Services makes a $4,200 credit sale. The state sales tax rate is 6% and the local sales tax rate is 2.5%. (Note: the sales tax amount is in addition to the credit sale amount.) Record sales and sales tax payable. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.).

Answer 1

To record the sale and sales tax payable for Far West Services, calculate the combined sales tax on the $4,200 credit sale at 8.5%, resulting in $357. Debit Accounts Receivable for $4,557 and credit Sales Revenue for $4,200 and Sales Tax Payable for $357.

Step-by-step explanation:

To record the sales and sales tax payable for Far West Services, we first need to calculate the total amount of sales tax on the $4,200 credit sale. The state sales tax is 6% and the local sales tax is 2.5%, which adds up to a combined sales tax rate of 8.5%. Using the formula amount of sales tax = price × rate of sales tax, we can find the sales tax amount:

$4,200 × 0.085 = $357

This is the additional amount that will be collected for sales tax. Now, to record this in the company’s books, we do the following:

• Debit Accounts Receivable $4,557 ($4,200 for the sale + $357 for sales tax).
• Credit Sales Revenue $4,200.
• Credit Sales Tax Payable $357.

This entry reflects the credit sale and the obligation to remit the collected sales tax to the appropriate tax authorities.

Answer 2

Debit Accounts receivable $4,200

Credit Revenue account $3,870.97

Credit State Sales tax payable $232.26

Credit local Sales tax payable $96.77

Step-by-step explanation:

When revenue is earned but cash is yet to be received and sales tax are to be accounted for at 8.5%, the entries required are;

Debit Accounts receivable 108.5%

Credit Revenue account 100%

Credit Sales tax payable 8.5%

Given that the sales tax amount is in addition to the credit sale amount, let the sales revenue be R

6% * R + 2.5% * R + R = $4,200

1.085R = $4200

R = $3870.97

States tax = 6% * $3870.97

=$232.26

Local tax = 2.5% * $3870.97

= $96.77