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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Kramerica Inc. sold 350 oil drums to Thompson Manufacturing for $75 each. In addition to the $75 sale price per drum, there is a $1 per drum federal excise tax and a 7% state sales tax. What journal entry should be made to record this sale?

a. Debit Accounts Receivable 28,438; credit Sales Revenue 28,438.

b. Debit Accounts Receivable 26,250; credit Sales Revenue 26,250.

c. Debit Accounts Receivable 26,250; debit Taxes Expense 2,188; credit Excise Taxes Payable (Federal) 350; credit Sales Taxes Payable (State) 1,838; credit Sales Revenue 26,250.

d. Debit Accounts Receivable 28,438; credit Excise Taxes Payable (Federal) 350; credit Sales Taxes Payable (State) 1,838; credit Sales Revenue 26,250.

To determine

Concept introduction:

Liabilities:

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

To indicate:

The correct journal entry to record the sales.

Explanation

The journal entry to record the sales is explained as follows:

Debit Accounts receivable (26250+1838+350)

28,438

Credit Excise Taxes payable (Feder...

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