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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: 6% on the first $55,000 earnedMedicare taxes: 1.5% on the first $130,000 earnedFederal income taxes withheld from wages: $7,500State income taxes: 5% of gross earningsInsurance withholdings: 1% of gross earningsState unemployment taxes: 5.4% on the first $7,000 earnedFederal unemployment taxes: 0.8% on the first $7,000 earned The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end.a. Prepare the necessary entry to record Brookhaven’s February payroll. The entry will include deductions for the following:Social Security taxesMedicare taxesFederal income taxes withheldState income taxesInsurance withholdings b. Prepare the journal entry to record Brookhaven’s payroll tax expense. The entry will include the following:Matching Social Security taxesMatching Medicare taxesState unemployment taxesFederal unemployment taxes 2. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following: 12/1Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity.2/10Established 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 2% of the units will require repair, with warranty costs averaging $27 per unit.12/22Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.12/26Borrowed $5,000 from First City Bank; signed a note payable due in 60 days.12/31Repaired six XY-80s during the month at a total cost of $162.12/31Accrued 3 days of salaries at a total cost of $1,400.
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on October 31 to record accrued interest.
c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 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 31:8/2:Borrowed $75,000 from the Bank of Kingsville by signing a 120-day note.8/20:Issued a $40,000 note to Harris Motors for the purchase of a $40,000 delivery truck. The note is due in 180 days and carries a 12% interest rate.9/10:Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed.9/11:Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and carries a 14% interest rate.10/10:The note to Pans Enterprises was paid in full.
10/31: The note to Datatex Equipment was paid in full.
11/30: Paid note to Bank of Kingville
Instructionsa. Prepare journal entries to record the transactions.b. Prepare adjusting entries on October 31 to record accrued interest.c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date.
