Essay about Week 4 Assignment

Submitted By jkeune
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Week Four Exercise: Liability
By Jerrod Keune
ACC 205: Principles of Financial Accounting I
Instructor: Erina Master
28 May 2015

Week Four Exercise Assignment
Liability
1. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing:
Social Security taxes: 4% on the first $55,000 earned per employee
Medicare taxes: 1.5% on the first $130,000 earned per employee
Federal income taxes withheld from wages: $7,500
State income taxes: 4% of gross earnings
Insurance withholdings: 1% of gross earnings
State unemployment taxes: 5.4% on the first $7,000 earned per employee
Federal unemployment taxes: 0.8% on the first $7,000 earned per employee
Social Security Taxes
$50,000
4%
$2,000
Medicare Taxes
$50,000
1.5%
$750
Federal Income Taxes

$7,500
State Income Taxes
$50,000
4%
$2,000
Insurance Withholding
$50,000
1%
$500
State Unemployment Taxes
$50,000
5%
$2,700
Federal Unemployment Tax
$50,000
0.8%
$400

The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end and no wages have been paid during the month.
a. Prepare the necessary entry to record Brookhaven’s February payroll. The entry will include deductions for the following:
Social Security taxes
Medicare taxes
Federal income taxes withheld
State income taxes
Insurance withholdings

Salary Expense
$50,000

Social Security Taxes

$2,000 Medicare Taxes

$750 Federal Income Tax

$7,500 State Income Tax

$2,000 Insurance Withholdings

$500 Net Payroll Payable

$37,250

b. Prepare the journal entry to record Brookhaven’s payroll tax expense. The entry will include the following:
Matching Social Security taxes
Matching Medicare taxes
State unemployment taxes
Federal unemployment taxes
Payroll Taxes
5850

Social Security Payable

2000 Medicare Payable

750 State Unemployment Payable

2700 Federal Unemployment Payable

400

2. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following:

1-Dec: Borrowed $10,000 from the First City Bank by signing a 3-month, 15% note payable.
Interest and principal are due at maturity.

10-Dec: Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 3% of the units will require repair, with warranty costs averaging $27 per unit (parts only).
22-Dec: Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.
26-Dec: Borrowed $5,000 from First City Bank; signed a 15% note payable due in 60 days. (Assume 360 day year for interest)
31-Dec: Repaired six XY-80s during the month at a total cost of $162

31-Dec: Accrued three days of salaries at a total cost of $1,400.

Instructions
a. Prepare journal entries to record the transactions.
Dec. 1
Cash
$10,000

Notes Payable

$10,000

Dec. 10
Warranty Expense
$810

Warranty Payable

$810

Dec. 22
Inventory
$16,000

Accounts Payable

$16,000

Dec. 26
Cash
$5,000

Notes Payable

$5,000

Dec. 31
Warranty Payable
$162

Cash

$162

Dec. 31
Salary Expense
$1,400

Salary Payable

$1,400

b. Prepare adjusting entries on December 31 to record accrued interest.
(10,000 * 15%)/12
$125

(5,000 * 15%)/(60/360)
$125

Dec. 31
Interest Expense
$250

Interest Payable

$250

3. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:
2-Aug: Borrowed $55,000 from the Bank of Kingsville by…