Question

Vail Book Mart sells books and other supplies to students in a state where the sales tax rate is 6 percent. Vail Book Mart engaged in the following transactions for 2016. Sales tax of 6 percent is collected on all sales. 1. Book sales, not including sales tax, for 2016 amounted to $274,000 cash. 2. Cash sales of miscellaneous items in 2016 were $146,000, not including tax. 3. Cost of goods sold was $211,000 for the year. 4. Paid $131,000 in operating expenses for the year. 5. Paid the sales tax collected to the state agency. Required: a. What is the total amount of sales tax Vail Book Mart collected and paid for the year? b. Prepare the journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Event 1: book sales, not including sales tax for 2016 amounted to 274,000 Event 2: Cash sales of miscellaneous items in 2016 were $146,000, not including tax Event 3: Cost of goods sold was $211,000 for the year. Event 4: Paid $131,000 in operating expenses for the year. Event 5: Paid the sales tax collected to the state agency. c. What is the Vail Book Mart’s net income for the year?

Answer 1

a. Total amount of sales tax Vail Book Mart collected and paid for the year is:

Sales tax collected:

274,000*6% = 16,440

146,000*6% = 8,760

Total sale tax collected and paid during the year is $25,200

b. Journal entries:

Date	Particulars	L.F	Amount ($)	Amount ($)
Event 1	Cash		290,440
	Sales tax payable			16,440
	Sales			274,000
Event 2	Cash		154,760
	Sales tax payable			8,760
	Sales			146,000
Event 3	Cost of goods sold		211,000
	Merchnadise Inventory			211,000
Event 4	Operating Expenses		131,000
	Cash			131,000
Event 5	Sales tax payable		25,200
	cash			25,200

c.

Net Income:

Sales (274,000+146,000) = 420,000

Less: Cost of goods sold = 211,000

Less: expenses 131,000

Net Income 78,000