60.1K

Verified Solution

Link Copied!

Sales taxes should be recognized when the underlying event takes place.

A state requires large merchants (i.e., those with sales over a specified dollar amount) to report and remit their sales taxes within 15 days of the end of each month. It requires small merchants to report and remit their taxes within 15 days of the end of each quarter.

In January 2018, large merchants remitted sales taxes of $400 million owing to sales of December 2017. In February 2018, they remitted $280 million of sales taxes owing to sales of January 2018. In January small merchants remitted sales taxes of $150 million owing to sales of the fourth quarter of 2015.

1. Prepare an appropriate journal entry to indicate the impact of the transactions on the states fund finan- cial statements for the year ending December 31, 2017.

2. Suppose, instead, that 10 percent of the taxes received by the state were collected on behalf of a city within the state. It is the policy of the state to remit the taxes to the city 30 days after it receives them. Prepare an appropriate journal entry to indicate the impact of the transactions on the citys fund finan- cial statements for the year ending December 31, 2017

3. Suppose instead that it was the policy of the state to remit the taxes to the city 90 days after it receives them. How would your response to Part (2) differ? Explain. Would your response be the same with respect to the citys government-wide statements?

Answer & Explanation Solved by verified expert

See Answer