Choice "A" is correct. Under the modified accrual basis of accounting, sales tax revenue is recognized when it is measurable and available. Measurable is defined as a known amount while available is defined as collected during the period or shortly thereafter (typically within 60 days of period end). As illustrated below, the amounts collected meet the definition of measurable and available for both the State and Curry City. The allocation of the dollars is one-third (2/6) and two-thirds (4/6) of total remittances. Tax Receipts/Remittances
| |
|---|
Date
| Curry City
2%
| State
4%
| Total
| Merchant
Sales
| Explanation
|
|---|
May 31 | | | | 7,500,000 | Sales are reported (derived from
question for illustration - $450,000/6%) | June 15 | | 450,000 | 450,000 | | Taxes are received by the state from
merchants by the 15th (given) | June 30 | | | | 10,000,000 | Sales are reported (derived from
question for illustration - $600,000/6%) | July 15 | | 600,000 | 600,000 | | Taxes are received by the state from
merchants by the 15th (given) | July 30 | 150,000 | (150,000) | | | State remits Curry's 2% share of
May's total 6% tax in 45 days from 6/15 (given) | August 29 | 200,000 | (200,000) | | | State remits Curry's 2% share of
June's total 6% tax in 45 days from 7/15 (given) | August 30 | | | | | Sixty days from 6/30 (criteria for available) | Total | $ 350,000 | $ 700,000 | $ 1,050,000 | | |
Choice "d" is incorrect. The total remittances alone do not represent the tax revenues.Choice "c" is incorrect. The total remittances and the portion of May associated with City tax levies do not represent the tax revenues.Choice "b" is incorrect. The collections exclusively associated with May revenues are not the total tax revenues to be recognized by the City and the State.
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