300434

Question 1

Ivy Co. operates a retail store. All items are sold subject to a 6% state sales tax, which Ivy collects and records as sales revenue. Ivy files quarterly sales tax returns when due, by the 20th day following the end of the sales quarter. However, in accordance with state requirements, Ivy remits sales tax collected by the 20th day of the month following any month such collections exceed $500. Ivy takes these payments as credits on the quarterly sales tax return. The sales taxes paid by Ivy are charged against sales revenue.

The following is a monthly summary appearing in Ivy’s first quarter 20X1 sales revenue account:

            Debit       Credit  January            --       $10,600  February       $ 600        7,420  March             --          8,480
            $ 600      $26,500
            =====      ======= In its March 31, 20X1, balance sheet, what amount should Ivy report as sales taxes payable?

$900

$1,500

$1,590

$600

Answer 1

$900

January sales tax was paid in February since tax was over $500 ($600).

$10,600 / 1.06 = $10,000 sales
$10,000 x .06 = $600 tax

February sales = Credit to sales / (1.00 + Tax rate)
= $7,420 / 1.06
= $7,000

February sales tax = $7,000 x .06
= $420
OR
= $7,420 - $7,000
= $420

March sales = Credit to sales / (1.00 + Tax rate)
= $8,480 / 1.06
= $8,000

March sales tax = $8,000 x .06
= $480
OR
= $8,480 - $8,000
= $480

Sales tax payable on 3/31/X1 = $420 + $480
= $900

Note: Sales tax was not paid for February sales on March 20 because the amount owed at that time ($420) was less than $500.

Question 2

2271.01

Answer 2

Current liabilities represent obligations whose liquidation is expected to require the use of current assets or the creation of other current liabilities, and include the following:

a. Obligations for items that have entered into the operating cycle
b. Collections received in advance of the delivery of goods or performance of services
c. Debts arising from operations directly related to the operating cycle (e.g., accruals for wages, salaries, commissions, rentals, royalties, and income and other taxes)
d. Other liabilities whose regular and ordinary liquidation is expected to occur within one year or less (e.g., dividends payable, warranty payable, interest payable)

Question 3

FASB ASC 210-10-20