Question

Ben sells books and other supplies to students in a state where the sales tax rate is 8 percent. Ben 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 Ben collected and paid for the year?

b. Prepare the journal entries for numbers 1-5 listed above

c. What is Ben's net income for the year?

Answer 1

1	Total sales tax collected and paid
	Total sales
	Book sales	$          250,000
	Cash sales of miscellaneous items	$            85,000
	Total Sales	$          335,000
	Sales tax collected @ 8%	$            26,800
2	Journal entries
	Cash a/c Dr	$          270,000
	To Sales a/c	$          250,000
	To Sales tax payable a/c	$            20,000
	(Being cash sales made)
	Cash a/c Dr	$            91,800
	To Sales a/c	$            85,000
	To Sales tax payable a/c	$              6,800
	(Being cash sales of miscellaneous items made)
	Cost of goods sold Dr	$          190,000
	TO expenses payable a/c	$          190,000
	(Being cost of goods sold)
	Operating expenses a./c Dr	$          117,000	(Assumed that operating expenses are other than cost of goods sold)
	To Cash a/c	$          117,000
	(Being operating expenses paid)
	Sales tax payable a/c Dr	$            26,800
	To cash a/c	$            26,800
	(Being sales tax paid to the state agency)
3	Bens Net income for the year
	Sales	$          335,000
	Less : cost of goods sold	$       (190,000)
	Less : operating expenses	$       (117,000)
	Net income for the year	$            28,000