PA10-3 Recording and Reporting Current Liabilities [LO 10-2]

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

On December 31, calculated the payroll, which indicates gross earnings for wages ($80,000), payroll deductions for income tax ($8,000), payroll deductions for FICA ($6,000), payroll deductions for American Cancer Society ($3,000), employer contributions for FICA (matching), and state and federal unemployment taxes ($600). 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.

Collected rent revenue of $6,000 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. & 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.

3. Show how any of the liabilities arising from these items are reported on the balance sheet at December 31.

See the explanation for the answer.

Explanation:

The required journal entries will be prepared as follows:

1 & 2  

i.  To record payroll on December 31.

Date         General Journal                                Debit        Credit

Dec. 31     Salaries and Wages Expense          80000  

                Withheld Income Taxes Payable                        8000

                FICA Taxes Payable                                            6000

                Contribution to American                                   3000

               Cancer Society        

                Cash                                                                     63000

Dec. 31Payroll Tax Expense                          6600  

                FICA Taxes Payable                                           6000

               State and Federal Unemployment                     600

                Taxes Payable

ii. To record collection of rent on December 10.

Date           General Journal                        Debit            Credit

Dec. 10       Cash                                           6000  

                   Unearned Rent Revenue                               6000

iii. Adjusting entry on December 31.    

Date         General Journal                                  Debit         Credit

Dec. 31     Unearned Rent Revenue                    4000  

                Rent Revenue                                                        4000

3.

The liabilities should be reported in the balance sheet as follows:

L COMPANY

Balance Sheet (Partial)

At December 31

Current Liabilities:  

Income Taxes Payable                                                 8000

FICA Taxes Payable                                                     12000

Contribution to American Cancer Society                  3000

State and Federal Unemployment Taxes Payable     600

Unearned Rent Revenue                                             2000

Total current liabilities                                                  25600

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