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6 December, 15:56

Calhoun Crockery sold merchandise; the total proceeds collected, including a 7% sales tax, amounted to $74,900.

What is the amount that should be recorded as a current liability?

a. $0

b. $4,900

c. $5,243

d. $7,000

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Answers (1)
  1. 6 December, 18:51
    0
    Option (b) is correct.

    Explanation:

    Sale value of the merchandise = $74,900

    Sales tax liability = $74,900 * (7% : 107%)

    = $4,900

    Sale value prior to sales tax = $74,900 - $4,900

    = $70,000

    Sales tax @7% on $70,000 = $4,900

    Hope the above calculation will clear the concept since the question clearly mention that

    Calhoun Crockery sold merchandise; the total proceeds collected, including a 7% sales tax, amounted to $74,900.

    This $74,900 includes 7% tax also it means that the collected proceed is 100% + 7% = 107%

    which includes 7% tax liability.
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