Calhoun Crockery sold merchandise; the total proceeds collected, including a 7% sales tax, amounted to $74,900.

What is the amount that should be recorded as a current liability?

a. $0

b. $4,900

c. $5,243

d. $7,000

Option (b) is correct.

Explanation:

Sale value of the merchandise = $74,900

Sales tax liability = $74,900 * (7% : 107%)

= $4,900

Sale value prior to sales tax = $74,900 - $4,900

= $70,000

Sales tax @7% on $70,000 = $4,900

Hope the above calculation will clear the concept since the question clearly mention that

Calhoun Crockery sold merchandise; the total proceeds collected, including a 7% sales tax, amounted to $74,900.

This $74,900 includes 7% tax also it means that the collected proceed is 100% + 7% = 107%

which includes 7% tax liability.