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This is a question I’m having trouble with. If you could explain it in detail I would be grateful.
Q: A business commenced with capital in cash of $1,000. Inventory costing $800 net of sales tax is purchased on credit. Half of this inventory is then sold for $1,000 plus sales tax, the customer paying in cash at once.
The accounting equation after these transactions would show:
A. assets $1,775 less liabilities $175 equals capital $1,600
B. assets $2,775 less liabilities $975 equals capital $1,200
C. assets $2,575 less liabilities $800 equals capital $1,775
D. assets $2,575 less liabilities $975 equals capital $1,600You have not given the rate of sales tax, but I am guessing that for this question it is 17.5%
Which means that the sale was for 1,000 + tax of 175 = 1175
The purchase was for 800 + tax of 140 = 940
The cost of sales is 400, and the inventory remaining is 400.The assets are:
Cash: 1,000 + 1,175 = 2,175
Inventory: 400Total: 2,575
The liabilities are:
Payables: 940
Sales tax: 175 – 140 = 35Total: 975
The capital is:
1,000 + profit of 600 (1,000 – 400) = 1,600
The free lectures will help you with sales tax.
a business commenced with $1000 capital. inventories costing $800 are purchased on credit and half are sold for $1000 plus sales tax 17.5%, the customer paying cash at once. what will the account equation be after these transactions?
it does not say if the purchases are taxed. how do I go about this.
please help..Please do not post the same question twice.
You have asked it in another post and I have answered your other post.
However, the question you have asked is exactly the same as the question in the original post except for the fact that the original question specifically told you about sales tax on the purchases (as would a question like this in the exam).
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