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Interest Expense/Sales Tax Payable

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Please help with the following problems.

1) On October 1, 2006, Parton Industries borrowed $12 million cash to provide working capital. The loan was made by Second Bank under a short-term line of credit. Parton issued an 8-month, "noninterest-bearing note." 8% is the bank's stated "discount rate." Parton's fiscal period is the calendar year. In Parton's 2006 income statement interest expense for the note will be:

2) 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:

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Solution Summary

The solution explains how to calculate the amount of interest expense and sales tax payable. Step by step calculations are provided for each problem.

Solution Preview

1. In a discounted note, the interest is deducted upfront. Total interest is 12,000,000X8%X8/12 ...

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