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7 January, 06:38

You and several classmates are studying for the next accounting examination. They ask you to answer the following questions: 1. If cash is borrowed on a $54,000, 10-month, 10% note on August 1, how much interest expense would be incurred by December 31? $ 2. The cash register total including sales taxes is $42,315, and the sales tax rate is 5%. What is the sales taxes payable? $ 3. If $42,315 is collected in advance on November 1 for 5-month magazine subscriptions, what amount of subscription revenue should be recognized on December 31?

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  1. 7 January, 07:25
    0
    a. $2,250

    b. $2,015

    c. $16,926

    Explanation:

    1. The computation of interest expense is shown below:

    = Principal * rate * (number of months : total number of months)

    = $54,000 * 10% * 5 months : 12 months

    = $2,250

    The five months are computed from August 1 to December 31

    2. The computation of sales tax payable is shown below:

    = Cash register * sales tax rate : (100 + sales tax rate)

    = $42,315 * 5% : (100 + 5%)

    = $42,315 * 5 : 105

    = $2,015

    3. The computation of the subscription revenue is shown below:

    = Advanced collected * (number of months : given months)

    = $42,315 * (2 months : 5 months)

    = $16,926

    The two months are computed from November 1 to December 31
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