Question

In: Accounting

The following selected transactions apply to Topeca Supply for November and December Year 1.

The following selected transactions apply to Topeca Supply for November and December Year 1. November was the first month of operations. Sales tax is collected at the time of sale but is not paid to the state sales tax agency until the following month.

  1. Cash sales for November Year 1 were $65,000 plus sales tax of 7 percent.

  2. Topeca Supply paid the November sales tax to the state agency on December 10, Year 1.

  3. Cash sales for December Year 1 were $78,500 plus sales tax of 7 percent.

Required
a. Show the effect of the above transactions on a statements model like the one shown as follows. In the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), an investing activity (IA), or a financing activity (FA). The letters NA indicate that an element is not affected by the event. (Enter any decreases to account balances and cash outflows with a minus sign.)

TOPECA SUPPLY
Horizontal Statements Model
EventAssets=Liabilities+Stockholder's EquityIncome StatementStatement of Cash Flows
Cash=Sales Tax Payable+Common Stock+Retained EarningsRevenueExpense=Net Income
1.
=
+
+


=


2.
=
+
+


=


3.
=
+
+


=


b. What was the total amount of sales tax paid in Year 1?




Sales tax paid

c. What was the total amount of sales tax collected in Year 1?




Sales tax collected

d. What is the amount of the sales tax liability as of December 31, Year 1?




Sales tax liability

e. On which financial statement will the sales tax liability appear?




The liability is shown on the.

Solutions

Expert Solution

Sales tax is collected from customer and paid to Sales Tax Agency

When we receive from customer we create Sales Tax Payable and then pay it off later.


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