tThe tollowing information apples to the questions displayed below] Heines Clock

Question

tThe tollowing information apples to the questions displayed below] Heines Clocks is a retailer of wel, mentie, Falls, South Dakota and grandfether clocks and is located in the Empire Mall in Sioux clock was sold for $11,000 cosh plus 4 percent salos tax. The clock had originelly cost Heines $7.000. Assume Heine uses o perpetual invertory system 1. 1000 points 1. Indicate the effects of the amounts for the above transactions (Enter any decreases to account balances with a minus sign) Equity Assets

Explanation / Answer

Solution 1:

Assets – Liabilities = Stockholder’s Equity

$4,440 – $440 = $4000

Working Notes:

Original cost for the clock sold = $7000

Sales Price = $11000

Sales tax Collected in Cash= 4% *11,000= $440

Effects:

Solution 2 Journal Entry:

Journal Entry

Date

Particulars

Debit

Credit

XX/XX

Cash A/c Dr.

11440

                                 To Sales- Godfather Clock A/c

11000

                                  To sales tax Liability A/c

440

(sale of clock being recorded with 4% sales tax)

Solution 3- Journal Entry:

Journal Entry

Date

Particulars

Debit

Credit

XX/XX

Purchases- Godfather Clock A/c Dr.

7000

                                 To Cash/Vendor A/c

7000

(purchase of clock being recorded)

For Purchase of Clock, it has been assumed there is no sales tax paid at the time of purchase.

Journal Entry

Date

Particulars

Debit

Credit

XX/XX

Cash A/c Dr.

11440

                                 To Sales- Godfather Clock A/c

11000

                                  To sales tax Liability A/c

440

(sale of clock being recorded with 4% sales tax)

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