Question

Vail Book Mart sells books and other supplies to students in a state where the sales tax rate is 8 percent. Vail Book Mart engaged in the following transactions for Year 1. Sales tax of 8 percent is collected on all sales.
1.Book sales, not including sales tax, for Year 1 amounted to $250,000 cash.
2.Cash sales of miscellaneous items in Year 1 were $85,000, not including tax.
3.Cost of goods sold was $190,000 for the year.
4.Paid $117,000 in operating expenses for the year.
5.Paid the sales tax collected to the state agency.

Required:

a. What is the total amount of sales tax Vail Book Mart collected and paid for the year? Sales tax collected
b. Prepare the journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

A) Amount of Sales Tax(at 8%) collected and paid

               = (250000×0.08) + (85000×0.08)

               = 20000 + 6800

               = 26800

B) Journal Entries

1.        Dr       Cash 270000

                    Cr         Sales revenue        250000

                    Cr           Sales tax payable    20000

2.          Dr      Cash 91800

                      Cr         Sales revenue             85000

                      Cr           Sales tax payable      6800

3.          Dr   Sales Tax Payable    26800

                         Cr    Cash            26800

4.           Dr   Operating Expenses        117000

                       Cr    Cash                        117000

Answer 2

Answer:

a. What is the total amount of sales tax Vail Book Mart collected and paid for the year?

total sales x 8% = ($250,000 + $85,000) x 8% = $335,000 x 8% = $26,800

b. Prepare the journal entries for the above transactions.

1)

Dr Cash 270,000

    Cr Sales revenue 250,000

    Cr Sales tax payable 20,000

2)

Dr Cash 91,800

    Cr Sales revenue 85,000

    Cr Sales tax payable 6,800

3) If the company uses a periodic inventory system:

Dr Cost of goods sold 190,000

    Cr Merchandise (books and others) inventory 190,000

4) this journal entry is necessary only if all operating expenses were paid at the same time, if not, several journal entries for specific expenses should have been made:

Dr Operating expenses 117,000

    Cr Cash 117,000

5)

Dr Sales tax payable 26,800

    Cr Cash 26,800