30 PGB - Horngren'S Financial And Managerial Accounting

Question

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 are as 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 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.

Step-by-Step Solution

Answer

Total Adjusted current liability: $ 130,278

T Accounts with unadjusted balances

Accounts Payable
		$118,000	June 30, 2018

 

Interest Payable
		$ 0	June 30, 2018

 

Salaries Payable
		$ 0	June 30, 2018

 

Employee Income Taxes Payable
		$ 0	June 30, 2018

 

FICA-OASDI Taxes Payable
		$ 0	June 30, 2018

 

FICA-Medicare Taxes Payable
		$ 0	June 30, 2018

 

Federal Unemployment Taxes Payable
		$ 0	June 30, 2018

 

State Unemployment Taxes Payable
		$ 0	June 30, 2018

 

Unearned Rent Revenue
		$ 5,400	June 30, 2018

 

Long-term Notes Payable
		$ 198,000	June 30, 2018

Journalizing and posting adjusting entries

Journal Entries
Date	Particular	Debit	Credit
a.	Interest Expense	$ 3,960
	Interest Payable		$ 3,960
	Being interest payable
b.	Salaries Expense	4,800
	Employee Income Tax Payable		920
	FICA – OASDI Taxes payable ($4,800 X 0.062)		298
	FICA – Medicare Taxes payable ($4,800 X 0.0145)		70
	Salaries Payable		3,512
	Being salaries expenses and payroll withholding recorded
c.	Payroll Tax Expense	368
	FICA – OASDI Tax payable ($4,800 X 0.062)		298
	FICA – Medicare Taxes payable ($4,800 X 0.0145)		70
d.	Unearned Rent Revenue	2,250
	Rent Revenue		2,250
	Being rent income earned

Accounts Payable
		$114,000	June 30, 2018

 

Interest Payable
		$        0	June 30, 2018
		3,960	June 30, 2018
Bal.	$ 3,960

 

Salaries Payable
		$        0	June 30, 2018
		3,512
Bal.	$ 3,512

 

Employee Income Taxes Payable
		$     0	June 30, 2018
		920	June 30, 2018
Bal.	$ 920

 

FICA-OASDI Taxes Payable
		$     0	June 30, 2018
		596	June 30, 2018
Bal.	$ 596

 

FICA-Medicare Taxes Payable
		$     0	June 30, 2018
		140	June 30, 2018
Bal.	$ 140

 

Federal Unemployment Taxes Payable
		$ 0	June 30, 2018

 

State Unemployment Taxes Payable
		$ 0	June 30, 2018

 

Unearned Rent Revenue
		$ 5,400	June 30, 2018
June 0, 2018	$ 2,250
Bal.		3,150

 

Long-term Notes Payable
		$ 198,000	June 30, 2018

Partial Balance Sheet (Current liabilities)

Partial Balance Sheet
Liabilities	Amount	Assets	Amount
Current Liabilities:
Accounts Payable	$ 118,000
Interest Payable	3,960
Salaries Payable	3,512
Employee Income Tax Payable	920
FICA – OASDI Taxes Payable	596
FICA – Medicare Taxes Payable	140
Unearned Rent Revenue	3,150
Total Current Liabilities	$ 130,278
Long Term Assets
Long-term Notes Payable	$ 198,000