A city levies a 2 percent sales tax that is collected for them by the state.Sales taxes must be remitted by the merchants to the state by the twentieth day of the month following the month in which the sale occurred.The state has a policy of remitting sales taxes to the city within 30 days of collection by the state.Cash received by the state related to sales taxes is as follows: $\begin{array}{ll}
\text {Amount received 1 / 20 / 14 , applicable to December 2013 sales } &\$ 100 \
\text { Amount received 2/20/14, applicable to January 2014 sales } &\$ 30 \
\text { Amount received 3/20/14, applicable to February 2014 sales } &\$ 20 \
\text { Amount received during 2014 related to March-November 2014 sales } &\$ 380 \
\text { Amount received 1 / 20 / 15 for December 2014 sales } &\$ 110 \
\text { Amount received 2 / 20 / 15 for January 2015 } &\$ 40 \
\text {Amount received 3 / 20 / 15 for February 2015 } &\$ 10
\end{array}$ Assuming the city uses the same period to define "available" as the maximum period allowable for property taxes,what amount should it recognize as sales tax revenue in its government-wide financial statements for the fiscal year ended 12/31/14?

Question

A city levies a 2 percent sales tax that is collected for them by the state.Sales taxes must be remitted by the merchants to the state by the twentieth day of the month following the month in which the sale occurred.The state has a policy of remitting sales taxes to the city within 30 days of collection by the state.Cash received by the state related to sales taxes is as follows: $\begin{array}{ll}
 \text {Amount received   1 / 20 / 14  , applicable to December 2013 sales  } &\$ 100 \
 \text { Amount received 2/20/14, applicable to January 2014 sales } &\$ 30 \
 \text { Amount received 3/20/14, applicable to February 2014 sales } &\$ 20 \
 \text { Amount received during 2014 related to March-November 2014 sales } &\$ 380 \
 \text { Amount received   1 / 20 / 15   for December 2014 sales } &\$ 110 \
 \text { Amount received   2 / 20 / 15   for January 2015 } &\$ 40 \
 \text {Amount received   3 / 20 / 15   for February 2015  } &\$ 10
\end{array}$ Assuming the city uses the same period to define "available" as the maximum period allowable for property taxes,what amount should it recognize as sales tax revenue in its government-wide financial statements for the fiscal year ended 12/31/14?

Quizplus · Accepted Answer

Sales taxes levied by the city are recognized as revenue in the period they become available. As per the given question, sales taxes must be remitted by the merchants to the state by the twentieth day of the month following the month in which the sale occurred, and the state has a policy of remitting sales taxes to the city within 30 days of collection by the state.

Therefore, for the fiscal year ended 12/31/14, sales taxes would be considered available if they were collected by the state by 1/31/15 (20 days for merchants to remit taxes to the state and 30 days for the state to remit to the city). Sales taxes collected by the state on or before 1/31/15 that are applicable to sales made in December 2014 would be considered "available" for the fiscal year ended 12/31/14.

According to the given data, the cash received by the state for sales made in December 2014 was $110. Therefore, the city should recognize $110 as sales tax revenue in its government-wide financial statements for the fiscal year ended 12/31/14.

Hence, the correct answer is option C, i.e., $540.

A City Levies a 2 Percent Sales Tax That Is