Most of the food sold in retail stores in California is not subject to sales tax
ID: 2568451 • Letter: M
Question
Most of the food sold in retail stores in California is not subject to sales taxes (e.g., candy), but some items are (e.g., soft drinks). Apparently, the candy lobbyists were more effective than soft drinks lobbyists when dealing with the state legislature. Most cash registers are designed to record taxable sales and nontaxable sales and automatically add the appropriate sales tax. The sales for the past week in the local
Quick MartQuick Mart
store were
$181,000
cash, of which
$45,000
was taxable at a rate of
5%.
Requirement
1.
By using the A = L + SE equation, show the impact on the entity, both now and when the sales taxes are paid at a later date. Also prepare corresponding journal entries.
Requirement 1. By using the A = L + SE equation, show the impact on the entity, both now and when the sales taxes are paid at a later date. (Enter decreases with a minus sign or parentheses and leave any unused cells blank.)
Assets
=
Liabilities + Stockholders' Equity
Sales tax
Retained
Cash
=
payable
+
earnings
Record sales
=
+
Payment of taxes
=
+
Prepare corresponding journal entries. Begin with the entry to record sales. (Record debits first, then credits. Explanations are not required.)
Accounts
Debit
Credit
Prepare the entry to record the payment of the taxes.
Date
Accounts
Debit
Credit
Choose from any list or enter any number in the input fields and then continue to the next question.
Explanation / Answer
Answer
Assets
=
Liabilities + Stockholders' Equity
Sales tax
Retained
Cash
=
payable
+
earnings
Record sales
$183250 [Sales + taxes collected on sales]
=
$2250
+
$181000 [Total Sales revenue]
Payment of taxes
($2250) Taxes paid
=
($2250) taxes paid
+
NET
$181000
=
NIL
+
$181000
Accounts
Debit
Credit
Cash
$183250
Sales tax payable
$2250
Sales revenue
$181000
(Sales made and Taxes due as ‘payable’)
Sales tax payable
$2250
Cash
$2250
(Sales tax payable now paid in Cash)
Assets
=
Liabilities + Stockholders' Equity
Sales tax
Retained
Cash
=
payable
+
earnings
Record sales
$183250 [Sales + taxes collected on sales]
=
$2250
+
$181000 [Total Sales revenue]
Payment of taxes
($2250) Taxes paid
=
($2250) taxes paid
+
NET
$181000
=
NIL
+
$181000
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