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2 September, 15:54

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.).

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  1. 2 September, 18:37
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    Answer

    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

    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
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