New Wave Co. sold 14,000 annual subscriptions of Game Life for $51 during Decemb
ID: 2359962 • Letter: N
Question
New Wave Co. sold 14,000 annual subscriptions of Game Life for $51 during December 2012. These new subscribers will receive monthly issues, beginning in January 2013. In addition, the business had taxable income of $448,000 during the first calendar quarter of 2013. The federal tax rate is 35%. A quarterly tax payment will be made on April 7, 2013. Prepare the Current Liabilities section of the balance sheet for New Wave Co. on March 31, 2013. New Wave Co. Balance Sheet - Current Liabilities section March 31, 2013 Current liabilities: Federal income taxes payable $ Advances on magazine subscriptions $ Total current liabilities $Explanation / Answer
The annual subscriptions value =14,000 annual subscriptions * $51 =$714,000 Of which 1/4th is already fulfilled. Hence, 3/4th of $714,000 = $535,500 worth of magazines is still left to be delivered. Federal income taxes = 35% of 448,000 = $156,800 Current Liabilities. Federal income taxes payable = $156,800 Advances on magazine subscriptions = $535,500 Total current liabilities = $692,300 Now, what is a liability? When I have taken money for a magazine, and I haven't yet delivered the magazine, Then I say that I am liable for the worth of a magazine. I have to undergo that expense to make some magazines. Federal taxes did not include the advance payments. Those were already paid at the end of December.