1. Liability
1.
Payroll accounting
. Assume that the following tax rates and payroll information
pertain to Brookhaven Publishing:
·
Social Security taxes: 4% on the first $55,000 earned per
employee
·
Medicare taxes: 1.5% on the first $130,000 earned per employee
·
Federal income taxes withheld from wages: $7,500
·
State income taxes: 4% of gross earnings
·
Insurance withholdings: 1% of gross earnings
·
State unemployment taxes: 5.4% on the first $7,000 earned per
employee

2. ·
Federal unemployment taxes: 0.8% on the first $7,000 earned
per employee
The company incurred a salary expense of $50,000 during
February. All employees had earned less than $5,000 by month-
end and no wages have been paid during the month.
a. Prepare the necessary entry to record Brookhaven’s February
payroll. The entry will include deductions for the following:
·
Social Security taxes
·
Medicare taxes
·
Federal income taxes withheld
·
State income taxes
·
Insurance withholdings

3. b. Prepare the journal entry to record Brookhaven’s payroll tax
expense. The entry will include the following:
·
Matching Social Security taxes
·
Matching Medicare taxes
·
State unemployment taxes
·
Federal unemployment taxes
2.
Current liabilities: entries and disclosure.
A review of selected financial activities of Visconti’s during

4. 20XX disclosed the following:
1-Dec: Borrowed $10,000 from the First City Bank by signing a
3-month, 15% note payable.
Interest and principal are due at maturity.
10-Dec: Established a warranty liability for the XY-80, a new
product. Sales are expected to
total 1,000 units during the month.
Past experience with similar products indicates
that 3% of the units will require repair, with warranty costs
averaging $27 per unit (parts only).
22-Dec: Purchased $16,000 of merchandise on account from
Oregon Company, terms 2/10, n/30.
26-Dec: Borrowed $5,000 from First City Bank; signed a 15%
note payable due in 60 days. (Assume 360 day year for interest)
31-Dec: Repaired six XY-80s during the month at a total cost of
$162

5. 31-Dec: Accrued three days of salaries at a total cost of $1,400.
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued
interest.
c. Prepare the Current Liability section of Red Bank’s balance
sheet as of December 31. Assume that the Accounts Payable
account totals $203,600 on this date.
3.
Notes payable
. Red Bank Enterprises was involved in the following
transactions during the fiscal year ending October 31:
2-Aug: Borrowed $55,000 from the Bank of Kingsville by
signing a 90-day, 12% note.
20-Aug: Issued a $50,000 note to Harris Motors for the
purchase of a $50,000 delivery truck. The note is due in 180
days and carries a 12% interest r ate.

6. 10-Sep: Purchased merchandise from Pans Enterprises in the
amount of $15,000.
Issued
a 30-day, 12% note in settlement of the balance owed.
11-Sep: Issued a $60,000 note to Datatex Equipment in
settlement of an overdue account
payable of the same amount.
The note is due in 30 days and carries a 14% interest rate.
10-Oct: The note to Pans Enterprises was paid in full.
11-Oct: The note to Datatex Equipment was paid in full.
30-Oct: Paid note to Bank of Kingsville.
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued
interest. (Daily interest is calculated utilizing the 360 day
method).
c. Prepare the Current Liability section of Red Bank’s balance
sheet as of December 31. Assume that the Accounts Payable
account totals $203,600 on this date.