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- Week Four Exercise AssignmentLiability 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 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 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 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 tototal 1,000 units during the month. Past experience with similar products indicatesthat 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. b. Prepare adjusting entries on December 31 to record accrued interest. c. Prepare the Current Liability section of Red Bank’s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date. 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 signing a 90-day, 12% note.20-Aug: Issued a $50,000 note to Harris Motors for the purchase of a $50,000 delivery truck. The note is due in 180 days and carries a 12% interest r ate.10-Sep: Purchased merchandise from Pans Enterprises in the amount of $15,000. Issueda 30-day, 12% note in settlement of the balance owed.11-Sep: Issued a $60,000 note to Datatex Equipment in settlement of an overdue accountpayable of the same amount. The note is due in 30 days and carries a 14% interest rate.10-Oct: The note to Pans Enterprises was paid in full.11-Oct: The note to Datatex Equipment was paid in full.30-Oct: Paid note to Bank of Kingsville. Instructions a. Prepare journal entries to record the transactions. b. Prepare adjusting entries on December 31 to record accrued interest. (Daily interest is calculated utilizing the 360 day method).c. Prepare the Current Liability section of Red Bank’s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date.
- Current Liability What is a current liability? From the perspective of a user of financial statements, why do you believe current liabilities are separated from long-term liabilities? Based on your current experience as well as and any additional research you may have done provide two examples of situations where businesses collect monies from customers and employees and report these amounts as a current liability. Guided Response:Review several of your peers’ posts and identify the core components of a current liability. Respond to at least two of your peers and provide recommendations to extend their thinking. Challenge your peers by asking a question that may cause them to reevaluate if their example is a current liability.
- Client Recommendations A client comes to you thinking about starting a consulting business. Your client is specifically interested in what type of entity should be created for this new business. Based on your readings or any additional research you may have done, discuss the advantages and disadvantages of the following: sole proprietorship, partnership, and corporation. Based on these advantages and disadvantages provide a clear recommendation to your client.
