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Accounting for Companies: Chaney Co, Lett Co, Epic Distributors

1.Chaney Co. is a retail store operating in a state with a 5% retail sales tax. The retailer may keep 1% of the sales tax collected. Chaney Co. records the sales tax in the Sales account. The amount recorded in the Sales account during May was $147,000.

The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is

A. $7,000.
B. $6,930.
C. $7,350.
D. $6,650.

2.
Lett Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be

A.zero.
B.the maximum of the range.
C.the mean of the range.
D.the minimum of the range.
.
3.Peete is involved in a pending court case. Peete's lawyers believe it is probable that Peete will be awarded damages of $1,000,000.

Instructions: Discuss the proper accounting treatment, including any required disclosures, for this situation. Give the rationale for your answers

4.
Which of the following results in an accrued liability?

A. Interest on a 6 month bank loan due in two months: Yes
Sales taxes collected on recent sales: Yes
B. Interest on a 6 month bank loan due in two months: Yes
Sales taxes collected on recent sales: No
C. Interest on a 6 month bank loan due in two months: No
Sales taxes collected on recent sales: No
D. Interest on a 6 month bank loan due in two months: No
Sales taxes collected on recent sales: Yes

5.
On November 1, Epic Distributors borrowed $24 million cash to fund an expansion of its facilities. The loan was made by WW BancCorp under a short-term line of credit. Epic issued a 9-month, 12% promissory note. Interest was payable at maturity. Epic's fiscal period is the calendar year. In Epic's adjusting entry for the note on December 31, interest expense will be:

A. $0
B. $240,000
C. $480,000
D. $640,000

Solution Preview

1. The sales tax is recorded in the sales account. The amount of sales is 147,000/1.05 = $140,000. The amount of sales tax is $7,000. 1% of the sales tax can be retained which is $70.
Amount of sales tax payable is 7,000-70=$6,930

2. D.the minimum of the range.
When loss is probable and a range is ...

Solution Summary

The solution explains various multiple choice questions relating to accounting

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