- October 7, 2021 at 6:18 pm #637212bazif17Participant
- Topics: 11
- Replies: 1
Hi John. Please can you explain on how to answer these two questions as I have been struggling to get the answer.
Q1) 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) $ 64000
Sales tax is charged at a flat rate of 15%. Eva Co’s sales tax account showed an opening credit balance of $4540 at the beginning of the month and a closing debit balance of $2720 at the end of the month.
What was the total sales tax paid to regulatory authorities during the month of March 20X3?
Q2) A business commenced with capital in cash $1000. Inventory costing $800 plus sales tax is purchased on credit, and half is sold for $1000, plus sales tax, the customer paying in cash at once. The sales tax rate is 20%.
What would the accounting equation after these transactions show?
A) Assets $1800 less liabilities $200 equals Capital $1600
B) Assets $2200 less liabilities $1000 equals Capital $1200
C) Assets $2600 less liabilities $800 equals Capital $1800
D) Assets $2600 less liabilities $1000 equals Capital $1600
Thank youOctober 8, 2021 at 6:51 am #637225John MoffatKeymaster
- Topics: 56
- Replies: 51576
You have found these questions in the BPP Revision Kit and therefore have answers to them.
In future please ask about whatever it is in the answers that you are not clear about and then I will explain, rather than expecting me to type out the answer all over again.
Q1. The tax charged on sales was 15/115 x 109,250 = 14,250 and this is owing to the state.
The tax suffered on the purchases was 15% x 64,000 = 9,600 and this reduces the amount owing to the state.
At the beginning of the month they owed 4,540 to the state and so if they had paid over no tax at all they would end up owing 4,540 + 14,250 – 9,600 = 9,190.
In fact it ended up with them being owed 2,720 by the state and so they must have paid over 9,190 + 2,720 = 11,910.
Q2. The cash will be 1,000 + (1,000 + 20%) = 2,200
The inventory will be 1/2 x 800 = 400
So the total assets are 2,600.
They owe sales tax to the state of (20% x 1,000) – (20% x 800) = 40
They owe for the purchases 800 + 20% = 960
So the total liabilities are 1,000
Therefore the answer is D.
Have you watched my free lectures on sales tax? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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