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Chapter 11: Q30PGB (page 613)

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.

Short Answer

Expert verified

Total Adjusted current liability:$ 130,278

Step by step solution

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01

T Accounts with unadjusted balances

02

Journalizing and posting adjusting entries

03

Partial Balance Sheet (Current liabilities)

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Most popular questions from this chapter

Consider the following transactions of Sapphire Software: Mar. 31 Recorded cash sales of $230,000, plus sales tax of 7% collected for the state of New Jersey. Apr. 6 Sent March sales tax to the state. Journalize the transactions for the company. Ignore cost of goods sold.

Accounting for warranty expense and warranty payable

The accounting records of Sculpted Ceramics included the following at January 1, 2018:

Estimated Warranty Payable

5,000 Beg. Bal

In the past, Sculpted’s warranty expense has been 9% of sales. During 2018, Sculpted made sales of \(113,000 and paid \)7,000 to satisfy warranty claims. Requirements

  1. Journalize Sculpted’s warranty expense and warranty payments during 2018. Explanations are not required.
  2. What balance of Estimated Warranty Payable will Sculpted report on its balance sheet at December 31, 2018?

Accounting treatment for contigencies

Analyze the following independent situations.

  1. Weaver, Inc. is being sued by a former employee. Weaver believes that there is a remote chance that the employee will win. The employee is suing weaver for damages of \(40.000.
  2. Gulf Oil Refinery had a gas explosion on one of its oil rigs. Gulf believes it is likely that it will have to pay environmental clean-up costs and damages in the future due to the gas explosion. Gulf cannot estimate the amount of the damages.
  3. Lawson Enterprises estimates that it will have to pay \)75,000 in warranty repairs next year.

Determine how each contingency should be treated.

Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

  1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are not required.
  2. What was Ricardo’s total expense for 2018 related to payroll?

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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