A state collects sales taxes both for itself and for counties that have elected to "piggy-back" their taxes on the state tax. The state takes several weeks to process returns and determine how much each participating government should receive, so tax collections are temporarily invested. Resulting investment income is distributed to the state to defray processing costs.

Required:

Prepare entries to record these transactions in the Custodial Fund.

1. The state collects sales taxes totaling $7,000,000 for itself and participating counties.
2. The entire $7,000,000 is temporarily invested.
3. The state determines that $5,500,000 of the tax collections belong to the state and that the remaining $1,500,000 should be distributed to the counties.
4. The investments are immediately liquidated and $7,100,000 is received in cash.
5. Tax collections and the investment income are forwarded to the state and the counties evenly.

Answer rating: 100% (QA)

To record the transactions in the Custodial Fund the following journal entries would be made 1 The s... View the full answer