Question

Part 1

Lynbrook, Inc. has decided to begin processing monthly payroll transactions “in house”, rather than using a Payroll Service Company, like ADP. On January 25, 2019, the end of the first monthly pay period of the year, Lynbrook’s payroll register showed that employees earned $22,000 of office salaries and $60,000 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $12,860 of federal income taxes, $1,340 of medical insurance deductions, and $840 of union dues. No employee earned more than $7,000 in January.

Required:

Prepare the journal entry related to the gross pay earned by employees on January 25. (Round amounts to cents.)

Prepare the journal entry related to the payroll taxes from the January 25 payroll. Lynbrook’s state unemployment tax rate is 4% of the first $7,000 earned by each employee. The federal unemployment tax rate is 0.6%, also on the first $7,000 earned by each employee. (round amounts to nearest penny)

Part 2

On October 19, 2018, Lynbrook, Inc. borrowed $200,000 cash by signing a 120-day 6% note payable with JP Morgan Chase Bank.

Required:

1. Prepare the entry on October 19, 2018 when the cash was borrowed.
2. Prepare the journal entry to record the accrued interest at December 31, 2018 (AJEs

made only at year-end).
3. Prepare the journal entry to record payment of the note at maturity.

Answer 1

Part 1:

Below are the required journal entries:

General Journal
Date	Account title and explanation	#Ref	Debit	Credit
25-Jan	Salaries and wages expense		$82,000.00
	Salaries and wages payable			$60,687.00
	Social security taxes withheld (6.2%*(22000+60000)			$5,084.00
	Medicare taxes withheld (1.45%*(22000+60000)			$1,189.00
	Federal income taxes withheld			$12,860.00
	Medical insurance deductions			$1,340.00
	Union dues withheld			$840.00
	(To record salaries and wages expense and payables)
General Journal
Date	Account title and explanation		Debit	Credit
25-Jan	Payroll tax expense		$3,772.00
	State unemployment taxes payable (82000*4%)			$3,280.00
	Federal unemployment taxes payable (82000*0.6%)			$492.00
	(To record payroll tax expense and payables)

Part 2:

Below are the required journal entries:

General Journal
Date	Account title and explanation		Debit	Credit
19-Oct	Cash		$200,000.00
	Note payable			$200,000.00
	(To record cash received against note payable)
General Journal
Date	Account title and explanation		Debit	Credit
31-Dec	Interest expense (200000*6%*{(12+30+31)/365})		$2,400.00
	Interest payable			$2,400.00
	(To record interest payable)
General Journal
Date	Account title and explanation		Debit	Credit
16-Feb	Interest expense (200000*6%*120/365)-2400		$1,545.21
	Interest payable		$2,400.00
	Note payable		$200,000.00
	Cash			$203,945.21
	(To record payment of note payable and interest thereof)