Question:
Accounting for sales tax and short-term debt -two accounting cycles
The subsequent transactions apply to Artesia Co. for 2012, its first year of operations.
1. Received $40,000 cash from the issue of a short-term note with a 5 % interest rate and a one-year maturity. The note was issued on 1st April, 2012.
2. Received $120,000 cash plus appropriate sales tax from performing services. The services are subject to a sales tax rate of 6 %.
3. Paid $72,000 cash for other operating expenses through the year.
4. Paid the sales tax due on $100,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until 2013.
5. Identify the accrued interest at 31st December, 2012.
The subsequent transactions apply to Artesia Co. for 2013.
1. Paid the balance of the sales tax due for 2012.
2. Received $145,000 cash plus appropriate sales tax from performing services. The services are subject to a sales tax rate of 6 %.
3. Repaid the principal of the note and appropriate interest on 1st April, 2013.
4. Paid $85,000 of other operating expenses through the year.
5. Paid the sales tax due on $120,000 of the service revenue. The sales tax on the balance of the revenue is not due until 2014.
Required
a. Prepare the transaction data in accounts under an accounting equation.
b. Purpose an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flow for 2012 and 2013.