Tax problem

This topic contains 8 replies, has 5 voices, and was last updated by avatar joseph89 4 years, 9 months ago.

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  • The following information relates to Eva Co’s sales tax for the month of March 20X3:
    Sales (including sales tax) 109,250
    Purchases (net of sales tax) 64,000
    Sales tax is charged at a flat rate of 15%. Eva Co’s sales tax account showed an opening credit balance of
    $4,540 at the beginning of the month and a closing debit balance of $2,720 at the end of the month.
    What was the total sales tax paid to regulatory authorities during the month of March 20X3?


    avatar
    littlestart
    Participant

    My answer is 6470.
    Draw a T account would help to sort this out

    sales tax for this month = 14250
    x +15%x = 109250 so x= 109250 / 1.15 = 95000
    15%x = 95000*15% = 14250
    Purchase tax for this month = 64000 *15% = 9600
    sales tax account
    Dr side = 9600 + 2720 = 12320
    Cr side = 4540 + 14250 = 18790
    the difference = 18790 – 12320 =6470 which is the amount that we need to pay to authorities as output sales tax > input sales tax.
    Hope the answer is correct.


    Profile photo of mahdiniaacc
    mahdiniaacc
    Member

    @littlestart said:
    Hope the answer is correct.

    of course, you are right.

    thank you


    avatar
    vrushali
    Participant

    hi
    but i think that the closing debit balance is given and so,
    Dr- 9600
    Cr-4540+2720+14250=21510
    =11910 on Dr..ie closing credit balance


    avatar
    joseph89
    Participant

    yes I had the same question, I was going to post it…
    vrushali is write the answer is 11910. this question is in bpp mock exam 1.
    but I can’t understand why when they said that there is a closing DEBIT balance of $2,720 at the end of the month, they put it on the T account on the credit side?


    Profile photo of mahdiniaacc
    mahdiniaacc
    Member

    @vrushali said:
    hi
    but i think that the closing debit balance is given and so,
    Dr- 9600
    Cr-4540+2720+14250=21510
    =11910 on Dr..ie closing credit balance

    I’m so sorry for my wrong post.
    As vrushali said the answer is 11,910
    Actually, I didn’t draw the T account for this question and posted my answer just by reading the prior answer. The question said that the closing balance is a debit figure of 2,720 so it means that 2,720 should be account as a credit c/f figure because the b/f is a debit figure.

    Beg your pardon again


    avatar
    joseph89
    Participant

    can you please explain this

    Quote:
    The question said that the closing balance is a debit figure of 2,720 so it means that 2,720 should be account as a credit c/f figure because the b/f is a debit figure.

    in more details if it’s possible.
    because I thought that when it’s said that closing balance is debit in T account it must be on debit side …


    Profile photo of mahdiniaacc
    mahdiniaacc
    Member

    Please forget temporarily this question and study other questions which say about ” closing balance “. Can you remember any debit closing balance that should be accounted in debit side of account?
    I think when a question says ” debit closing balance ” its carried forward should be credit. In fact a closing balance is just a balance so it’s not an entry like carried forward in the accounts’ turnover.
    I hope you got what I want to say.


    avatar
    joseph89
    Participant

    I had only two of such questions … one is this :D
    but I understood what you want to say. thanks a lot

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