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ACC 205 Week 4 Assignment Liability (Updated September 2013)


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Week 4
Liability. Please complete each of the exercises below in a word document. Save the document, and
submit it in the appropriate week using the Assignment Submission button.
1. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven
Social Security taxes: 6% 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
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:
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:
8/2: Borrowed $55,000 from the Bank of Kingsville by signing a 90-day, 12% note.
12/1 Borrowed $10,000 from the First City Bank by signing a 3- month, 15% note payable.
Interest and principal are due at maturity.
2/10 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).
12/22 Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.
12/26 Borrowed $5,000 from First City Bank; signed a 15% note payable due in 60 days.
(Assume 360 day year for interest)
12/31 Repaired six XY-80s during the month at a total cost of $162.
12/31 Accrued 3 days of salaries at a total cost of $1,400.
8/20: 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 rate.
9/10: Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued a 30-
day, 12% note in settlement of the balance owed.
9/11: 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.
The note to Pans Enterprises was paid in full.
The note to Datatex Equipment was paid in full.
Paid note to Bank of Kingsville

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