Reference no: EM132463237

Question Problem : Why accrued income taxes and bank load interest aren't liabilities when income tax is a liability?

Following information relates to Acco Co.

• It should show expected cash receipts and cash payments for the month and the cash balance expected on July 31.

Point a. Beginning cash balance on July 1: $50,000.

Point b. Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,720,000; June (actual), $1,200,000; and July (budgeted), $1,400,000.

Point c. Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $700,000; and July (budgeted), $750,000.

Point d. Budgeted cash disbursements for salaries in July: $275,000.

Point e. Budgeted depreciation expense for July: $36,000.

Point f. Other cash expenses budgeted for July: $200,000.

Point g. Accrued income taxes due in July: $80,000.h.Bank loan interest paid July 31: $6,600.

Additional Information

Point a. Cost of goods sold is 55% of sales.

Point b. Inventory at the end of June is $80,000 and at the end of July is $60,000.

Point c. Salaries payable on June 30 are $50,000 and are expected to be $60,000 on July 31.

Point d. The equipment account balance is $1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is $280,000.

Point e. The $6,600 cash payment of interest represents the 1% monthly expense on a bank loan of $660,000.

Point f. Income taxes payable on July 31 are $30,720, and the income tax rate applicable to the company is 30%.

Point g. The only other balance sheet accounts are: Common Stock, with a balance of $600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30.