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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Recording Various Liabilities

Plymouth Electronics had the following transactions that produced liabilities during 2020:

a. Purchased merchandise on credit for $80,000. ( Note: Assume a periodic inventory system.) Year-end wages of $40,000 were incurred, but not paid. Related federal income taxes of $13,000 and Medicare taxes of $580 were withheld. Employee wages are all above the Social Security maximum, so only Medicare was paid.

b. Year-end estimated income taxes payable, but unpaid, for the year were $113,615.

c. Sold merchandise on account for $3,636, including state sales taxes of $180. ( Note: Assume a periodic inventory system.)

d. Employer’s share of Medicare taxes for the period was $580. The taxes will be paid at a later date.

e. Borrowed cash under a 180-day, 8%, $155,000 note.

Required:

Prepare the entry to record each of these transactions (treat each transaction independently).

To determine

Concept introduction:

Liabilities:

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

To prepare:

The journal entries for the given liabilities transactions.

Explanation

The journal entries for the given liabilities transactions are explained as follows:

Plymouth Electronics
Journal Entries
# Account Titles Debit Credit
a. Merchandise Inventory $ 80,000
Accounts Payable $ 80,000
(Being Merchandise Purchased on account)
b. Payroll Expense $ 40,000
Federal Income Tax Withholdings Payable $ 13,000
Medicare Taxes Payable $ 580
Cash $ 26,420
(Being accrued wages and related liabilities recorded)
c...

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