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Chapter 13: 5E (page 694)

E13-5 (L01) (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique recorded cash sales of \(233,200 and credit sales of \)153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.

Instructions

Prepare the adjusting entries that should be recorded to fairly present the June 30 financial statements.

Short Answer

Expert verified

The sales revenue account is debited, and the sales tax payable account is credited with the same amount of $21,900 to record the transaction.

Step by step solution

01

Meaning of Adjusting Entries

Adjusting entries are those entries made to assign the right amount of revenue and expenses to each accounting period. An adjusting journal entry is an adjustment recorded at the end of an accounting period.

02

Adjusting entries for June 30 financial statements

Working notes:

Cash sales excluding sales tax = ($233,200 /106%) = $220,000

Credit sales excluding sales tax = ($153,700 / 106%) = $145,000

Sales tax = [($233,200 + $153,700) - $220,000 - $145,000]

= ($386,900 - $220,000 - $145,000)

= $21,900

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Most popular questions from this chapter

(Available-for-Sale and Held-to-Maturity Debt Securities Entries) The following information relates to the debt

securities investments of Wildcat Company.

1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of \(300,000 at 100 plus accrued interest.

Interest is payable on April 1 and October 1.

2. On April 1, semiannual interest is received

3. On July 1, 9% of bonds of Sampson, Inc. were purchased. These bonds with a par value of \)200,000 were purchased at 100

plus accrued interest. Interest dates are June 1 and December 1.

4. On September 1, bonds with a par value of $60,000, purchased on February 1, are sold at 99 plus accrued interest.

5. On October 1, semiannual interest is received.

6. On December 1, semiannual interest is received.

7. On December 31, the fair value of the bonds purchased February 1 and July 1 were 95 and 93, respectively.

Instructions

(a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are

available-for-sale securities.

(b) If Wildcat classified these as held-to-maturity investments, explain how the journal entries would differ from those in part (a).

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(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.

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(c) Using the best estimate of the amount of the loss expected to occur.

(d) Using the maximum amount of the loss in the range.

A typical provision is:

(a) bonds payable (c) a warranty liability

(2) cash (d) accounts payable

How are the terms 鈥減robable,鈥� 鈥渞easonably possible,鈥� and 鈥渞emote鈥� related to contingent liabilities?

Carow Corporation purchased, as a held-for-collection investment, \(60,000 of the 8%, 5-year bonds of Harrison, Inc.

for \)65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow鈥檚 journal entries for (a) the purchase

of the investment, and (b) the receipt of semiannual interest and premium amortization
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