3 2 points S operates in a business environment with a 5 sta

3. (2 points) S operates in a business environment with a 5% state sales tax rate and a 4% county sales tax rate. The state allows S to keep 1% of the sales tax it collects, however, the county requires S to remit 100% of the state 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 $721,580. S prepares AJEs monthly. Assume S remits the 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 the county.

Solution

Credit balance in sales=721580 it includes 5% state sales tax and 4% country sales tax Hence,sales is 109% (100+5+4) State sales tax of 1% can be ratained by S.So, sales tax to be remitted=5%-1%=4% Country sales tax to be remitted=4% State sales tax to be remitted in $=(721580/109)*4=26480 Country sales tax to be remitted in $=(721580/109)*4=26480 Date Account titles and explanation Debit Credit 30-Jun Sales 52960 Sales tax liabilty-state 26480 Sales tax liabilty-country 26480 (Recording sales tax liability) 10-Jul Sales tax liabilty-state 26480 Sales tax liabilty-country 26480 Cash 52960 (Payment of sales tax liability)