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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Smith Company is required to charge customers an 8% sales tax on all goods it sells. At the time of sale, Smith includes the combined amount of both sales and sales tax in the sales account. At the end of May, Smith’s sales account for May has a credit balance of $540,000. Prepare the sales tax adjusting journal entry for the end of May.

To determine

Prepare the sales tax adjusting entry for the end of May.

Explanation

Sales tax:

The sales tax is imposed on the retail transactions. It is collected by the seller from the customer and then it is paid by the seller to the government agency.

Prepare the sales tax adjusting entry for the end of May.

DateAccounts and ExplanationDebit ($)Credit ($)
May 31Sales40,000 
  Sales Tax Payable (2) 40,000
   (To record the adjusting entry for sales tax)  

Table (1)

Working note (1):

Compute the amount of sales:

Sales  = 

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