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(Adjusting Entry for Sales Tax and VAT) Eastwood Ranchers sells a herd of cattle to Rozo Meat Packers for €30,000 and the related VAT. Rozo Meat Packers sells the beef to Wrangler Supermarkets for €40,000 and the related VAT. Wrangler Supermarkets sells this beef to customers for €50,000 plus related VAT.Instructionsa. Assuming the VAT is 15% on all sales, prepare the journal entry to record the sale by Rozo Meat Packers to Wrangler Supermarkets.b. What is the net cash outlay that Eastwood Ranchers incurs related to the VAT?

Question

(Adjusting Entry for Sales Tax and VAT) Eastwood Ranchers sells a herd of cattle to Rozo Meat Packers for €30,000 and the related VAT. Rozo Meat Packers sells the beef to Wrangler Supermarkets for €40,000 and the related VAT. Wrangler Supermarkets sells this beef to customers for €50,000 plus related VAT.
Instructions
a. Assuming the VAT is 15% on all sales, prepare the journal entry to record the sale by Rozo Meat Packers to Wrangler Supermarkets.
b. What is the net cash outlay that Eastwood Ranchers incurs related to the VAT?

check_circleAnswer
Step 1

Calculate the value added tax (VAT) of Company R.

VAT Sales value x VAT rate
€40.000x 15%
=€6.000
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VAT Sales value x VAT rate €40.000x 15% =€6.000

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Step 2

a. Prepare a journal entry to record the sales made by Company R.

In the books of company R
Debit
Post
Credit
Date
Account Titles and Explanation
Ref
(€)
(€)
Accounts receivable (€40,000+ €6,000)
€46,000
Sales
€40,000
Value added tax (VAT@15% on sales)
€6,000
(To record the sales made on account)
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In the books of company R Debit Post Credit Date Account Titles and Explanation Ref (€) (€) Accounts receivable (€40,000+ €6,000) €46,000 Sales €40,000 Value added tax (VAT@15% on sales) €6,000 (To record the sales made on account)

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Step 3

b. Calculate the net cash outlay related to ...

Cash outlay
Sales value x VAT rate
related to VAT
E30.000 x 15%
=€4,500
help_outline

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Cash outlay Sales value x VAT rate related to VAT E30.000 x 15% =€4,500

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