Sales Tax Chapter -06 MULTIPLE CHOICE QUESTIONS 1. A business sold goods to the value of $500(net) to Harper Ltd. What would be the debit to Harper Ltd’s account if Sales tax is payable at a rate of 20%? a) $416.7 b) $500 ©) $600 d) $525 2. We sold goods that had a net value of $600 to Lucid ple. What entries are required to record this transaction if Sales tax is payable at 20%? a) Dr lL ple $600 Dr Sales tax $120 Cr Sales $720 b) Dr Lucid ple $720 a Sales tax $120 cr Sales $600 ©) Dr Lucid ple $600 co Sales tax $480 cr Sales $120 d) Dr Sales $600 Dr Sales tax $120 co Lucid ple $720 3- A summary of the transactions of Ramsgate, who is registered for Sales tax at 20%, shows the following for the month of August 20X9. Outputs $60,000 (exclusive of Sales tax) Inputs $40,286 (inclusive of Sales tax) At the beginning of the period Ramsgate owed $3,400 to HMRC, and during the period he has paid $2,600 to them. At the end of the period the amount owing to HMRC is: a) $4,857 b) $5,286 ©) $6,086 d) $86,86_ Chopter -06 __Asummary of the transactions of Witney ple, which is registered for Sales tax at 20%, shows the following for the month of November 20X4: Outputs $122,610 (inclusive of Sales tax) Inputs $78,857 (exclusive of Sales tax) ‘At the beginning of the month Witney owed $7,200 to HMRC and during November paid $6,800 to them. At 30 November 20X4 the amount owing to HMRC is: a) $11,864 b) $4,664 ©) $5,064 ad) $20,435 ‘The sales account is: a) Credited with the total of sales made, including Sales tax. b) Credited with the total of sales made, excluding Sales tax ¢) Debited with the total of sales made, including Sales tax d) Debited with the total of sales made, excluding Sales tax A sale is made for $243 inclusive of Sales tax at 20%. What is the entry to the sales account? a) Debit $48.6 Db) Credit $48.6 ©) Debit $40.5 d) Credit $40.5 Cash of $288 was received from a receivables who had purchased goods on credit for $240 plus Sales tax at 20%. What is the double entry for this receipt? a) —_~ Debiteash $288 Credit sales ‘$240 Credit Sales tax $48 b) Debit cash $288 Credit sales $288 ©) Debit cash $288 Credit receivables $240 Credit Sales tax $48 @ Debit cash $288 Credit receivables $288 ‘Whaat does a debit balance on the Sales tax account represent? a) An amount of Sales tax owing to HMRC b) A Sales tax expense to be written off in the profit and loss account ¢) An amount of Sales tax due from HMRC 4) Sales tax income to be included in the profit and loss account th 57Chopter -06 Soles Tox 9. Victoria sells material to Fraser for $240 plus Sales tax. Fraser manufactures goods from these materials and sells them to a customer, Helen, for $360 plus Sales tax. Victoria and Fraser are Sales tax registered traders and the goods rate of Sales tax is 20 %. How much Sales tax is paid to HMRC by each party to the transactions? a) Victoria pays $48 Fraser pays $72 b) Fraser pays $48 Helen pays $72 ©) Victoria pays $48 Fraser pays $24 d) Fraser pays $48 Helen pays $24 10. A business has an opening balance on the Sales tax account showing an amount owing to HMRC of $3,210. During the period there were standard rated outputs of $12,400, excluding Sales tax, and standard rated inputs of $11,280, including Sales tax. During the period $2,890 was paid to HMRC. The standard rate of Sales tax is 20%. What is the balance on the Sales tax account at the end of the period? a) $3,810 b) $920 ©) $600 d) $507 11, Charles sells goods for $1,200 and buys goods for $810. Both transactions include Sales tax at 20% in the price given. How much will Charles pay to the tax authorities in respect of these two transactions? a) $78 b) $65 ©) $200 d) $240 12. On 1 February the balance on Josh’s Sales tax account was $2,400. During the month, Sales tax on sales was $1,050, Sales tax on purchases and other expenses was $900 and a payment of Sales tax was made of $200. What was the credit balance on the Sales tax account at 28 February? a) $2,050 b) $2,350 ©) $2,450 a) $2,750 13. Output tax is: ” a) Sales tax on purchases b) Sales tax on sales ©) Payment to HMRC 4) Repayments from HMRCsoles 1 ——_Stepter:06 14. Who normally suffers the cost of Sales tax 1a) The first supplier in the chain of supply b) The manufacturer c) Theretailer 4) The consumer 15. During a month a business made sales of $24,600 and purchases of $15,200 exclusive Sales tax. The business is registered for Sales tax and both sales and purchases are subject to Sales tax at 20%, What is the balance on the Sales tax account at the end of the month? a) Adebit balance of $1,880 'b) Acredit balance of $1,880 ©) Adebit balance of $1,567 d) Acredit balance of $1,567 16. During a three-month period a business made the following sales and purchases: Sales $34,800 (exclusive of Sales tax at 20%) Purchases $30,785 (inclusive of Sales tax at 20%) ‘What is the balance on the Sales tax account at the end of the three-month period? a) $803 b) $669 ©) $1,829 d) $6,960 17. During a three-month period a business made sales of $72,145, including Sales tax at 20% and purchases of $54,200, excluding Sales tax at 20%. There was an amount due to. HMRC at 20% at the start of the three month period totaling $1,354. ‘What was the balance on the Sales tax account at the end of the three-month period? a) $1,184 b) $2,991 © $14,429 4) $3,589 18. Sales tax on a credit sale is recorded: a) By the supplier when the invoice is issued and by the customer when the invoice is received. b) By the supplier when the invoice is issued and by the customer when the payment is made to the supplier By the supplier when the cash payment is received and by the customer when the invoice is received By the supplier when the cash payment is received and by the customer when the cash payment is made © @)chapter 0g Soles Tox 19. Abusiness must charge Sales tax on its sales if: a) Itisa limited company b) Itssells goods and services ) It’s Sales tax registered trader 4) Ithas been trading for more than one year 20. Who administrates Sales tax in the UK? a) NICO b) Local Authority ©) HMRC d) Department for Trade 21. Which is not a Sales tax rate? a) Zero b) Standard ©) EU d) Lower 22. A business offers internet ordering and payment facilities. A customer purchases good: for $200 plus Sales tax at 20% by credit card. How would this transaction be posted t: the accounts of the buyer? a) Drbank $200; Dr Sales tax $40; Cr purchases $240 b) Dr purchases $200; Dr Sales tax $40; Cr: Account payable $240 ©) Dr purchases $200; Dr Sales tax $40; Cr Credit card account $240 4) Draccount payable $240; Cr Credit card accounts $240 23. Which of the following correctly explains the term trade discount? a) Areduetion in the amount of an invoice which a customer will pay b) A price reduction which a supplier agrees with all customers in a particular trade ©) A price reduction which a supplier agrees with an individual customer after an invoice has bee sent at a full price 4) A reduction in the list price by a supplier because of the nature of the business with an individus customer 24. Which of the following best explains Sales Tax (Sales tax)? a) A tax on business profits b) A tax levied on the sale of goods and services, which is administered and collected, by HMRC ©) Atax levied on the sale of goods and services, which is administered, by HMRC 4) A tax levied on the sale of goods and service, which all businesses must pay 25. The term tax point in connection with Sales tax signifies? a) The date which a transaction took place for Sales tax purchase b) The location of a Sales tax registered business ©) Entering into a sale transaction, which is subject to Sales tax with a customer 4) The supplier's address quoted on a Sales tax invoice= Chopter-06 26.Which of the following is required to be shown on the face of a valid Sales tax invoice? i. Purchaser Sales tax registration number fi, Tax point iii, Rate of Sales tax iv, Amount of Sales tax a) (\), ii), Gil) only 27. Which of the following statements is correct? a) Output tax charged to a customer is debited to the Sales tax account. b) Amachine is purchased for $200 plus Sales tax $40. The machinery account is debited with $200 and the Sales tax account debited with $40. The Sales tax is irrecoverable ¢) If the Sales tax account has a debit balance at the end of the Sales tax quarter, the balance is recoverable from the government. 4) The sales figures in the statement of profit & loss and other comprehensive income for the year of a Sales tax registered business includes Sales tax 28.A business purchases machinery on credit for $14,100, inclusive of Sales tax at the standard rate. What accounting entries are needed to reflect this transaction? a) Debit Machinery Credit Creditors b) Debit Machinery Credit V AT Credit payables ©) Debit Machinery Debit Sales tax Credit payables @) Debit Machinery Debit Sales tax Credit payables $14,100 $14,100 $14,100 $2,350 $11,750 $11,750 $2,350 $14,100 $14,100 $2,820 $11,280 29. A business purchases a motor car on credit for one of its salesmen. The cost is $9,200 plus Sales tax. What accounting entries are needed to reflect these transactions? a) Debit Motor cars $9,200 Credit payables b) Debit Motor cars $11,040 Credit payables ©) Debit Motor cars $9,200 Debit Sales tax Credit payables $11,040 d) Debit Motor cars $11,040 Credit Sales tax Credit payables $9,200 $9,200 $11,040 $1,840 $1,840 61