How is sales tax recorded? Is it considered an expense of a business? Why or why not?
No, sales tax is not considered an expense of a business.
Sales tax payable is a liability that must typically be settled within a year after collection. Therefore, it falls under the category of current or short-term liabilities. As a result, the outstanding sum is shown on the balance sheet under current liabilities.
No, sales tax is not an expense to the company but a current liability. The company collects the customers' sales tax and sends it regularly to the state. Usually, they submit it every month, but sometimes the company pays it frequently to the state, depending on the state and the amount of the tax.
:On December 31, 2017, Franklin purchased $13,000 of merchandise inventory on a one-year, 9% note payable. Franklin uses a perpetual inventory system. Requirements
1. Journalize the company’s purchase of merchandise inventory on December 31, 2017.
2. Journalize the company’s accrual of interest expense on June 30, 2018, its fiscal year-end.
3. Journalize the company’s payment of the note plus interest on December 31, 2018
This problem continues the Canyon Canoe Company situation from Chapter 10. Amber and Zack Wilson are continuing their analysis of the company’s position and believe the company will need to borrow $15,000 in order to expand operations. They consult Rivers Nation Bank and secure a 6%, one-year note on September 1, 2019, with interest due at maturity. Additionally, the company hires an employee, John Vance, on September 1. John will receive a salary of $3,000 per month. Payroll deductions include federal income tax at 25%, OASDI at 6.2%, Medicare at 1.45%, and monthly health insurance premium of $250. The company will incur matching FICA taxes, FUTA tax at 0.6%, and SUTA tax at 5.4%. Round calculations to two decimals. Omit explanations on journal entries.
Record the entry Canyon Canoe Company would make to record the payment to the bank on September 1, 2020.
Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of $62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, $22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, $3,000), life insurance (cost to the company, $330), and retirement benefits (cost to the company, 10% of salaries expense).
On August 10, Swanson Company recorded sales of merchandise inventory on account, $4,000. The sales were subject to sales tax of 4%. The company uses the perpetual inventory system. On September 30, Swanson paid $500 of sales tax to the state.
1. Journalize the transaction to record the sale on August 10. Ignore cost of goods sold.
The following transactions of Belkin Howe occurred during 2018:
Apr. 30 Howe is party to a patent infringement lawsuit of $230,000. Howe’s attorney is certain it is remote that Howe will lose this lawsuit.
Jun. 30 Estimated warranty expense at 3% of sales of $390,000.
Jul. 28 Warranty claims paid in the amount of $6,300.
Sep. 30 Howe is party to a lawsuit for copyright violation of $90,000. Howe’s attorney advises that it is probable Howe will lose this lawsuit. The attorney estimates the loss at $90,000.
Dec. 31 Howe estimated warranty expense on sales for the second half of the year of $520,000 at 3%.
1. Journalize required transactions, if any, in Howe’s general journal. Explanations are not required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?
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