Exercise 9-3B Recording sales tax

Accounting for Current Liabilities and Payroll

Exercise 9-3B Recording sales tax

The Tiger Book Store sells books and other supplies to students in a state where the sales tax rate is 7 percent. The Tiger Book Store engaged in the following transactions for Year 1. Sales tax of 7 percent is collected on all sales.

1. Book sales, not including sales tax, for Year 1 amounted to $215,000 cash.
2. Cash sales of miscellaneous items in Year 1 were $160,000, not including tax.
3. Cost of goods sold amounted to $195,000 for the year.
4. Paid $95,000 in operating expenses for the year.
5. Paid the sales tax collected to the state agency.
   Required
   a. What is the total amount of sales tax the Tiger Book Store collected and paid for the year?
   b. Prepare the journal entries for the preceding transactions.
   c. What is the Tiger Book Store’s net income for the year?

Exercise 9-4B Recognizing sales tax payable

The following selected transactions apply to Fast Stop for November and December Year 1. November was the first month of operations. Sales tax is collected at the time of sale but is not paid to the state sales tax agency until the following month.

1. Cash sales for November Year 1 were $85,000 plus sales tax of 8 percent.
2. Fast Stop paid the November sales tax to the state agency on December 10, Year 1.
3. Cash sales for December Year 1 were $98,000 plus sales tax of 8 percent.
   Required
   a. Record the preceding transactions in general journal form.
   b. Show the effect of the preceding transactions on a horizontal statements model like the one shown next.
   c. What was the total amount of sales tax paid in Year 1?
   d. What was the total amount of sales tax collected in Year 1?
   e. What is the amount of the sales tax liability as of December 31, Year 1?
   f. On what financial statement will the sales tax liability appear?