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Greetings sir, the question from Kaplan study text is a new entity was formed with an initial issue of 1000 shares for $1 cash per share.Inventory costing 800 net of sales tax at17.5% was purchased on credit.Half of this inventory was sold for 1000 plus sales tax,the customer paying promptly in cash. What would the accounting equation after these transactions show.
Inventory is 400.
The profit is 1,000 – 400 = 600.
The cash received from the sale of inventory is 1175
The sales tax payable to the state is 175 – (17.5% x 800) = 35
The payable for the inventory is 800 + (17.5% x 800) = 940.
Therefore total cash = 1,000 + 1,175 = 2,175
Total inventory = 400
Total current liabilities = 940 + 35 = 975Therefore net assets = 2,175 + 400 – 975 = 1,600
Capital = 1,000
Profit = 600Have you watched my free lectures on sales tax?
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