Question

1. S operates in a business environment with a 6% state sales tax rate and a 4% county sales tax rate. The state allows S to keep 2% of the state sales tax it collects while the county requires S to remit 99% of the county sales tax it collects. During June, S recorded the sales taxes in its sales revenue account. S’s sales revenue account for June had a credit balance of $1,650,000. S prepares AJEs monthly. Assume S remits the June sales taxes to the state and the county on July 10. Prepare the entries S made (1) as of 06-30 to reflect the sales tax it will remit to the state and to the county and (2) on 07-10 to reflect the payment to the state and to the county.

Answer 1

ANSWER

Credit balance in sales=1,650,000
	it includes 6% state sales tax and 4% country sales tax
	Hence,sales is 109% (99+6+4)
	State sales tax of 1% can be ratained by S.So, sales tax to be remitted=6%-2%=4%
	Country sales tax to be remitted=4%
	State sales tax to be remitted in $=(1,650,000/109)*4=60,550
	Country sales tax to be remitted in $=(1,650,000/109)*4=60,550
	Date	Account titles and explanation			Debit	Credit
	30-Jun	Sales			121,100
		Sales tax liabilty-state				60,550
		Sales tax liabilty-country				60,550
		(Recording sales tax liability)
	10-Jul	Sales tax liabilty-state			60,550
		Sales tax liabilty-country			60,550
		Cash				121,100
		(Payment of sales tax liability)

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