According to the New York Times, a new study indicates how taxes might be used to curb consumption of sugary drinks and suggests that applying a tax based on the amount of calories contained in a serving rather than its size would be more effective.

Questions:

1. What are the relationships that the study mentioned in the article found between the drop in consumption of sugary soft drinks and the amount of taxes added to the price?

2. (a)Approximately how much tax would be added to a 12-ounce can of Coke, based on a tax rate of four-hundredths of a penny per calorie?
(b) How does your answer in 2(a) differ from a straight one-half cent per ounce tax? Comment on any difference.

3. (a) If you assume that a 12-ounce can of Coke purchased from a vending machine costs $1.00, what type of journal entry would the distributor make in order to pay the tax mentioned in 2 (b)?
(b) What if the state/city also charges a 7% sales tax, how does this change your journal entry?

Source:
Strom, S. (2014). Study Examines Efficacy of Taxes on Sugary Drinks. The New York Times, June 2 (Retrievable online at http://www.nytimes.com/2014/06/02/business/study-examines-efficacy-of-taxes-on-sugary-drinks.html?action=click&contentCollection=Health&region=Footer&module=MoreInSection&pgtype=Blogs)