Chapter 11
Current Liabilities and Payroll Accounting
PROBLEMS: SET B
P11-1B On January 1, 2014, the ledger of Werth Company contains the following liability
accounts.
Accounts Payable
$35,000
Sales Taxes Payable
5,000
Unearned Service Revenue
12,000
Prepare current liability
entries, adjusting entries, and
current liabilities section.
(LO 1, 2, 3, 4, 5), AN
During January, the following selected transactions occurred.
Jan. 1
5
12
14
20
25
Borrowed $30,000 in cash from Platteville Bank on a 4-month, 6%, $30,000 note.
Sold merchandise for cash totaling $11,130, which includes 6% sales taxes.
Performed services for customers who had made advance payments of $8,000.
(Credit Service Revenue.)
Paid state treasurers department for sales taxes collected in December 2013, $5,000.
Sold 750 units of a new product on credit at $44 per unit, plus 6% sales tax.
This new product is subject to a 1-year warranty.
Sold merchandise for cash totaling $16,536, which includes 6% sales taxes.
Instructions
(a) Journalize the January transactions.
(b) Journalize the adjusting entries at January 31 for (1) the outstanding notes payable,
and (2) estimated warranty liability, assuming warranty costs are expected to equal
5% of sales of the new product.
(c) Prepare the current liabilities section of the balance sheet at January 31, 2014. Assume
no change in accounts payable.
P11-2B The following are selected transactions of Lindblom Company. Lindblom
prepares financial statements quarterly.
Jan.
Feb.
Mar.
Apr.
July
1
31
1
1
Sept. 30
Oct. 1
Dec. 1
Dec. 31
Purchased merchandise on account from Evers Company, $20,000, terms 2/10,
n/30. (Lindblom uses the perpetual inventory system.)
Issued a 12%, 2-month, $20,000 note to Evers in payment of account.
Accrued interest for 2 months on Evers note.
Paid face value and interest on Evers note.
Purchased equipment from Francisco Equipment paying $12,000 in cash and
signing a 10%, 3-month, $40,000 note.
Accrued interest for 3 months on Francisco note.
Paid face value and interest on Francisco note.
Borrowed $25,000 from the National Bank by issuing a 3-month, 12% note
with a face value of $25,000.
Recognized interest expense for 1 month on National Bank note.
Instructions
(a) Prepare journal entries for the above transactions and events.
(b) Post to the accounts, Notes Payable, Interest Payable, and Interest Expense.
(c) Show the balance sheet presentation of notes and interest payable at December 31.
(d) What is total interest expense for the year?
P11-3B Otto Drug Store has four employees who are paid on an hourly basis plus timeand-a-half for all hours worked in excess of 40 a week. Payroll data for the week ended
February 15, 2014, are shown below.
Employee
Hours
Worked
Hourly
Rate
Federal
Income Tax
Withholdings
United
Fund
Contributions
M. Dingler
D. Patel
L. Grimmett
A. Bly
39
42
44
46
$12.00
12.00
10.00
10.00
$34
20
51
36
$ 0
10.00
5.00
5.00
(c) Current liability total
$74,346
Journalize and post note
transactions and show
balance sheet presentation.
(LO 2), AN
(d) $1,650
Prepare payroll register and
payroll entries.
(LO 6, 7), AN
P-37
P-38
11 Current Liabilities and Payroll Accounting
The following tax rates are applicable: FICA 7.65%, state income taxes 3%, state unemployment taxes 5.4%, and federal unemployment 0.8%. The first three employees are sales
clerks (store wages expense). The fourth employee performs administrative duties (office
wages expense).
(a) Net pay $1,567.03
(b) Payroll tax expense
$2,67.86
(d) Cash paid $436.90
Instructions
(a) Prepare a payroll register for the weekly payroll.
(b) Journalize the payroll on February 15, 2014, and the accrual of employer payroll taxes.
(c) Journalize the payment of the payroll on February 16, 2014.
(d) Journalize the remittance to the Federal Reserve bank on February 28, 2014, of the
FICA and federal income taxes payable to the government.
Journalize payroll transactions
and adjusting entries.
P11-4B The following payroll liability accounts are included in the ledger of Grandon
Company on January 1, 2014.
(LO 6, 7, 9), AN
FICA Taxes Payable
Federal Income Taxes Payable
State Income Taxes Payable
Federal Unemployment Taxes Payable
State Unemployment Taxes Payable
Union Dues Payable
U.S. Savings Bonds Payable
$ 540
1,100
210
54
365
200
300
In January, the following transactions occurred.
Jan. 10
12
15
17
20
31
31
Sent check for $200 to union treasurer for union dues.
Remitted check for $1,640 to the Federal Reserve bank for FICA taxes and
federal income taxes withheld.
Purchased U.S. Savings Bonds for employees by writing check for $300.
Paid state income taxes withheld from employees.
Paid federal and state unemployment taxes.
Completed monthly payroll register, which shows salaries and wages $42,000,
FICA taxes withheld $3,213, federal income taxes payable $2,540, state income
taxes payable $500, union dues payable $300, United Fund contributions
payable $1,300, and net pay $34,147.
Prepared payroll checks for the net pay and distributed checks to employees.
At January 31, the company also makes the following accruals pertaining to employee
compensation.
1. Employer payroll taxes: FICA taxes 7.65%, state unemployment taxes 5.4%, and federal
unemployment taxes 0.8%.
*2. Vacation pay: 5% of gross earnings.
(b) Payroll tax expense
$5,817; Vacation benets
expense $2,100
Instructions
(a) Journalize the January transactions.
(b) Journalize the adjustments pertaining to employee compensation at January 31.
Prepare entries for payroll and
payroll taxes; prepare W-2
data.
P11-5B For the year ended December 31, 2014, Stone Company reports the following
summary payroll data.
(LO 6, 7), AN
Gross earnings:
Administrative salaries $150,000
Electricians wages
240,000
Total
$390,000
Deductions:
FICA taxes
$ 26,735
Federal income taxes withheld
78,000
State income taxes withheld (3%)
11,700
United Fund contributions payable
17,000
Health insurance premiums
12,000
Total
(a) Salaries and wages
payable $244,565
(b) Payroll tax expense
$29,705
$145,435
Stone Companys payroll taxes are Social Security tax 6.2%, Medicare tax 1.45%, state
unemployment 2.5% (due to a stable employment record), and 0.8% federal unemployment. Gross earnings subject to Social Security taxes of 6.2% total $340,000, and gross
earnings subject to unemployment taxes total $90,000.
Instructions
(a) Prepare a summary journal entry at December 31 for the full years payroll.
(b) Journalize the adjusting entry at December 31 to record the employers payroll taxes.
(c) The W-2 Wage and Tax Statement requires the dollar data shown below.
Problems: Set B
Wages, Tips,
Other Compensation
Federal Income
Tax Withheld
State Income
Tax Withheld
FICA
Wages
FICA Tax
Withheld
Complete the required data for the following employees.
Employee
Gross Earnings
Federal Income Tax Withheld
A. Chavez
E. Kremer
$50,000
24,000
$18,300
4,800
P-39
