Question

Lakeview Company completed the following two transactions. The annual accounting period ends December 31.

1. On December 31, calculated the payroll, which indicates gross earnings for wages ($68,000), payroll deductions for income tax ($6,800), payroll deductions for FICA ($5,100), payroll deductions for American Cancer Society ($2,550), employer contributions for FICA (matching), and state and federal unemployment taxes ($595). Employees were paid in cash, but payments for the corresponding payroll deductions have not yet been made and employer taxes have not yet been recorded.
2. Collected rent revenue of $5,775 on December 10 for office space that Lakeview rented to another business. The rent collected was for 30 days from December 12 to January 10 and was credited in full to Deferred Revenue.

Required:

1. 1. & 2. Prepare the journal entries to record payroll on December 31, the collection of rent on December 10 and adjusting journal entry on December 31.
2. 3. Show how any of the liabilities related to these items should be reported on the company’s balance sheet at December 31.

Answer 1

1

It is given in the question, employees have already been paid. So we will need to only pass the entry for deductions and employer contributions.

First we will pass entry to record gross wages and employee deductions:-

Next we will pass entry to record employers contribution and transfer of employee deducted to respective payable accounts.

A portion of rent is earned, 20 days of rent is paid for this year, earned rent = ($5,775/30 days) x 20 days = $3,850. All the cash collected is transferred to deferred rent, so to correct this transaction we should credit revenue of $3,850

3.

Liabilties under Serial no.2 should be disclosed under current liabilities section of the balance sheet.