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Chapter 11: Q25PGA (page 610)

The general ledger of Seal-N-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 \( 114,000

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 7,200

Long-term Notes Payable 210,000

The additional data needed to develop the payroll and adjusting entries at June 30 are as follows:

a. The long-term debt is payable in annual installments of \)42,000, with the next installment due on July 31. On that date, Seal-N-Ship will also pay one year’s interest at 9%. 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 \(4,700. Assume that employee income taxes withheld are \)910 and that all earnings are subject to OASDI.

c. Record the associated employer taxes payable for the last payroll of the fiscal year, \(4,700. Assume that the earnings are not subject to unemployment compensation taxes

d. On February 1, the company collected one year’s rent of \)7,200 in advance.

Requirements

1. Using T-accounts, open the listed accounts and insert the unadjusted June 30 balances.

2. Journalize and post the June 30 payroll and adjusting entries to the accounts that you 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:$ 127,046

Step by step solution

01

T Accounts with unadjusted balances

02

Journalizing and posting adjusting entries

03

Partial Balance Sheet (Current liabilities section)

Partial Balance Sheet

Liabilities

Amount

Assets

Amount

Current Liabilities:

Accounts Payable

$ 114,000

Interest Payable

3,780

Salaries Payable

3,790

Employee Income Tax Payable

910

FICA – OASDI Taxes Payable

298

FICA – Medicare Taxes Payable

68

Unearned Rent Revenue

4,200

Total Current Liabilities

$ 127,046

Long Term Assets

Long-term Notes Payable

$ 210,000

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Most popular questions from this chapter

What do short-term notes payable represent?

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?

List the required employee payroll withholding deductions, and provide the tax rate for each.

Logan White is general manager of Valuepoint Salons. During 2018, White worked for the company all year at a \(13,600 monthly salary. He also earned a year-end bonus equal to 15% of his annual salary.

White’s federal income tax withheld during 2018 was \)1,360 per month, plus \(4,876 on his bonus check. State income tax withheld came to \)150 per month, plus \(60 on the bonus. FICA tax was withheld on the annual earnings. White authorized the following payroll deductions: Charity Fund contribution of 1% of total earnings and life insurance of \)40 per month.

Valuepoint incurred payroll tax expense on White for FICA tax. The company also paid state unemployment tax and federal unemployment tax.

Requirements

1. Compute White’s gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.

2. Compute Valuepoint’s total 2018 payroll tax expense for White.

3. Make the journal entry to record Valuepoint’s expense for White’s total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.

4. Make the journal entry to record the accrual of Valuepoint’s payroll tax expense for White’s total earnings.

5. Make the journal entry for the payment of the payroll withholdings and taxes.

Many small businesses have to squeeze down costs any way they can just to survive. One way many businesses do this is by hiring workers as “independent contractors” rather than as regular employees. Unlike rules for regular employees, a business does not have to pay Social Security (FICA) taxes and unemployment insurance payments for independent contractors. Similarly, it does not have to withhold federal, state, or local income taxes or the employee’s share of FICA taxes. The IRS has a “20-factor test” that determines whether a worker should be considered an employee or a contractor, but many businesses ignore those rules or interpret them loosely in their favor. When workers are treated as independent contractors, they do not get a W-2 form at tax time (they get a 1099 instead), they do not have any income taxes withheld, and they find themselves subject to “self-employment” taxes, by which they bear the brunt of both the employee’s and the employer’s shares of FICA taxes.

Requirements

  1. When a business abuses this issue, how is the independent contractor hurt?

If a business takes an aggressive position—that is, interprets the law in a very slanted way—is there an ethical issue involved? Who is hurt?
See all solutions

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