Tutorial

1. You and several classmates are studying for the next accounting exam. They
ask you to answer the following questions.

a) If cash is borrowed on a $50,000, 6-month, 12% note on September 1, how

much interest expense would be incurred by December 31?

Principal x rate x time (4 months)

$50,000 x 12% x (4/12) = $2,000

The five months are computed from September 1 to December 31

b) How is the sales tax amount determined when the cash register total includes
sales taxes?

Cash register × sales tax rate ÷ (100 + sales tax rate)

c) If $15,000 is collected in advance on November 1 for 3 months’ rent, what

amount of rent revenue should be recognized by December 31?

= Advanced collected × (number of months ÷ given months)

= $15,000 × (2 months ÷ 3 months)

= $10,000

The two months are computed from November 1 to December 31

2. In January, gross earnings in Ramirez Company were $40,000. All earnings are
subject to 7.65% FICA taxes. Federal income tax withheld was $9,000, and state
income tax with-held was $1,000. (a) Calculate net pay for January, and

Net pay: $40,000- (7.65%*40,000)-$9,000-$1000 = 26,940

(b) record the payroll.

Date Account name & Explanation Debit Credit

Januar Payroll Tax Expense 40,000
y FICA Taxes Payable ($40,000*7.65%) 3,060
 Federal Income Taxes Payable 9,000
State Income Taxes Payable 1,000
Salaries and Wages Payable 26,940
(To record payroll)

3. In January, the payroll supervisor determines that gross earnings for Halo
Company are $70,000. All earnings are subject to 7.65% FICA taxes, 5.4% state
unemployment taxes, and 0.8% federal unemployment taxes. Halo asks you to
record the employer’s payroll taxes.

Date Account name & Explanation Debit Credit

January Payroll Tax Expense 9,695
FICA Taxes Payable ($70,000*7.65%) 5,355
Federal Unemployment Taxes 560
Payable($70,000*0.8 %) 3,780
State Unemployment Taxes Payable ($70,000*5.4
%)
(To record employer’s payroll taxes on January payroll)

4. On June 1, Streamsong Company borrows $150,000 from First Bank on a 6

month, $150,000, 8% note.

a) Prepare the entry on June 1.

Date Account name & Explanation Debit Credit

June Cash 150,000
1 Notes Payable 150,000
(To record the amount of borrowed
money by note)

b) Prepared the adjusting entry on June 30.

Date Account name & Explanation Debit Credit

June Interest Expense {(150000*0.08)*6/12}/6 1000
30 Interest Payable 1000
(To record the interest expense)

c) Prepared the entry at maturity (December 1), assuming monthly adjusting

entries have been made through November 30.
 Date Account name & Explanation Debit Credit
Dec 1 Notes Payable 150,000
Interest Payable 6,000
Cash 156,000
(To record the matured note)

d) What was the total financing cost (interest expense)?

(150,000*0.08)*6/12= 6,000