Q16E - Horngren'S Financial And Managerial Accounting

Question

Watson Publishing completed the following transactions during 2018: Oct. 1 Sold a six-month subscription (starting on November 1), collecting cash of $240, plus sales tax of 8%. Nov. 15 Remitted (paid) the sales tax to the state of Tennessee. Dec. 31 Made the necessary adjustment at year-end to record the amount of subscription revenue earned during the year. Journalize the transactions (explanations are not required). Round to the nearest dollar.

Step-by-Step Solution

Answer

• The cash is debited with $259.20. The unearned revenue and the tax payable are credited with $240.20 and $19.20.
• The sales tax payable is debited with $19.20 and the cash is credited with $19.20.
• The cash is debited with $80 and the service revenue is credited with $80.

 

Step 1: Calculation of Sales tax payable

$\begin{array}{c}\text{Sales Tax Payable}=\text{Sales}\times \text{Tax Rate}\\ =\$240\times 8\%\\ =\$\mathrm{19.20.}\end{array}$

Step 2: Journal entry

 

Date	Accounts and explanation	Debit	Credit
Oct. 1	Cash	259.20
	Unearned revenue		$240.00
	Sales tax payable		19.20
	(To record cash collection from pre subscription and sales tax.)
Nov. 15	Sales tax payable	19.20
	Cash		19.20
	(To record cash payment for sales tax payable.)
Dec. 31	Cash	80
	Service revenue		80
	To record earned cash from service revenue.