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
- 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
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 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 | |||||
| 31-Dec: Accrued three days of salaries at a total cost of $1,400. | |||||
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