You and several classmates are studying for the next accounting examination. The

Question

You and several classmates are studying for the next accounting examination. They ask you to answer the following questions: (Round answers to 0 decimal places, e.g. $62,482.)

1. If cash is borrowed on a $66,800, 10-month, 10% note on August 1, how much interest expense would be incurred by December 31?

2. The cash register total including sales tax is $44,835, and the sales tax rate is 5%. What is the sales taxes payable?

3. If $44,835 is collected in advance on November 1 for 6-month magazine subscriptions, what amount of subsciptions, revenue should be recognized on December 31?

Explanation / Answer

1 Note Payable 66800 Interest rate 10% No of months- Aug 1 to Dec 31 5 Interest expense till Dec 31 66800*10%*5/12 2783.33 2 Cash collected including sales tax 44835 Sales Tax rate 5% Amount excluding sales tax 44835*100/105 42700 Amount of Sales tax Payable: 44835*5/105 2135 3 Magazine Subscription advance 44835 Magazine Subscription advance period 6 months No of months- Nov 1 to Dec 31 2 Subscription to be recognized on Dec 31 44835*2/6 14945

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