Which of the following happens as a result of selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%?

Question

Quizplus · Accepted Answer

Sales tax collected = $200 × 4% = $8
Cash collected = Sale of $200 + Sales tax of $8 = $208
The transaction increases cash flow from operating activities by $208.
The transaction increases assets (cash) by $208 and decreases assets (inventory) by its cost of $130, resulting in a net increase in assets of $78 (or $208 ? $130). It also increases liabilities by the sales tax collected of $8 and increases stockholders' equity (retained earnings) by $70.
Thus: Increase in assets of $78 = Increase in Liabilities of $8 + Increase in stockholders' equity of $70.
The increase in stockholders' equity is also explained as follows. Revenues (sales) increase by $200 and expenses (cost of goods sold) increase by $130, which results in an increase in net income of $70 (which increases retained earnings).

Which of the Following Happens as a Result of Selling