Chapter 11: 11RQ (page 604)
What are the two main controls for payroll? Provide an example of each.
Two main controls over payroll are i) control for efficiency, ii) control to safeguard payroll disbursement.
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The general ledger of Prompt Ship at June 30, 2018, the end of the company’s fiscal year, includes the following account balances before payroll and adjusting entries.
Accounts Payable \( 118,000
Interest Payable 0
Salaries Payable 0
Employee Income Taxes Payable 0
FICA—OASDI Taxes Payable 0
FICA—Medicare Taxes Payable 0
Federal Unemployment Taxes Payable 0
State Unemployment Taxes Payable 0
Unearned Rent Revenue 5,400
Long-term Notes Payable 198,000
The additional data needed to develop the payroll and adjusting entries at June 30 areas follows:
a. The long-term debt is payable in annual installments of \)39,600, with the next installment due on July 31. On that date, Prompt Ship will also pay one year’s interest at 10%. Interest was paid on July 31 of the preceding year. Make the adjusting entry to accrue interest expense at year-end.
b. Gross unpaid salaries for the last payroll of the fiscal year were \(4,800. Assume that employee income taxes withheld are \)920 and that all earnings are subject to OASDI.
c. Record the associated employer taxes payable for the last payroll of the fiscal year,\(4,800. Assume that the earnings are not subject to unemployment compensation taxes
d. On February 1, the company collected one year’s rent of \)5,400 in advance.
Requirements
1. Using T-accounts, open the listed accounts and insert the unadjusted June 30balances.
2. Journalize and post the June 30 payroll and adjusting entries to the accounts thatyou opened. Identify each adjusting entry by letter. Round to the nearest dollar.
3. Prepare the current liabilities section of the balance sheet at June 30, 2018.
The following transactions of Plymouth Pharmacies occurred during 2017 and 2018:
2017
Jan. 9 Purchased computer equipment at a cost of \(12,000, signing a six-month, 9% note payable for that amount.
29 Recorded the week’s sales of \)63,000, three-fourths on credit and onefourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.
Feb. 5 Sent the last week’s sales tax to the state.
Jul. 9 Paid the six-month, 9% note, plus interest, at maturity.
Aug. 31 Purchased merchandise inventory for \(9,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.
Dec. 31 Accrued warranty expense, which is estimated at 4% of sales of \)609,000.
31 Accrued interest on all outstanding notes payable.
2018
Feb. 28 Paid the six-month 10% note, plus interest, at maturity.
Journalize the transactions in Plymouth’s general journal. Explanations are not required. Round to the nearest dollar.
The following transactions of Belkin Howe occurred during 2018:
Apr. 30 Howe is party to a patent infringement lawsuit of \(230,000. Howe’s attorney is certain it is remote that Howe will lose this lawsuit.
Jun. 30 Estimated warranty expense at 3% of sales of \)390,000.
Jul. 28 Warranty claims paid in the amount of \(6,300.
Sep. 30 Howe is party to a lawsuit for copyright violation of \)90,000. Howe’s attorney advises that it is probable Howe will lose this lawsuit. The attorney estimates the loss at \(90,000.
Dec. 31 Howe estimated warranty expense on sales for the second half of the year of \)520,000 at 3%.
Requirements
1. Journalize required transactions, if any, in Howe’s general journal. Explanations are not required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?
List the required employee payroll withholding deductions, and provide the tax rate for each.
On July 5, Williams Company recorded sales of merchandise inventory on account, $55,000. The sales were subject to sales tax of 4%. On August 15, Williams Company paid the sales tax owed to the state from the July 5 transaction. Requirements 1. Journalize the transaction to record the sale on July 5. Ignore cost of goods sold. 2. Journalize the transaction to record the payment of sales tax to the state on August 15.
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