Question

During the current year, Casual Wear Co. had total retail sales of $800,000 and collected a 5% state sales tax on all sales. At the end of the prior year, Casual Wear had $4,500 in sales taxes that had not been remitted to the state authorities. During the current year, Casual Wear remitted $39,500 in state sales tax. What amount should be recorded in Casual Wear's current-year financial statements?

Answer 1

Answer:

The $5,000 should be recorded in Casual Wear's current-year financial statements

Explanation:

The computation of the ending balance of sales tax payable is shown below:

= Total Retail sales × state sales tax + sales tax at the end of the year - remitted states sales tax

= $800,000 × 5% + $4,500 - $39,500

= $40,000 + $4,500 - $39,500

= $44,500 - $39,500

= $5,000

The state sales tax should always be computed on the retail sales.