Question

QUESTION 2

On January 1, 2022, the ledger of Wildhorse Co. contained these liability accounts.

Accounts Payable		$43,600
Sales Taxes Payable		7,700
Unearned Service Revenue		20,100

During January, the following selected transactions occurred.

Jan. 1		Borrowed $18,000 in cash from Apex Bank on a 4-month, 5%, $18,000 note.
5		Sold merchandise for cash totaling $6,890, which includes 6% sales taxes.
12		Performed services for customers who had made advance payments of $10,800. (Credit Service Revenue.)
14		Paid state treasurer’s department for sales taxes collected in December 2021, $7,700.
20		Sold 610 units of a new product on credit at $54 per unit, plus 5% sales tax.

During January, the company’s employees earned wages of $88,000. Withholdings related to these wages were $6,732 for Social Security (FICA), $5,229 for federal income tax, and $1,569 for state income tax. The company owed no money related to these earnings for federal or state unemployment tax. Assume that wages earned during January will be paid during February. No entry had been recorded for wages or payroll tax expense as of January 31.

A. Journalize the January transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. Round answers to nearest whole dollar amount, e.g. 5,275.)

B.Journalize the adjusting entries at January 31 for the outstanding note payable and for salaries and wages expense and payroll tax expense. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

C. Prepare the current liabilities section of the balance sheet at January 31, 2022. Assume no change in Accounts Payable.

Answer 1

A.	Date	Account Titles and Explanation	Debit	Credit
	Jan. 1	Cash	$18,000
		Notes Payable		$18,000
	Jan. 5	Cash	$6,890
		Sales Revenue ($6,890 x 100/106)		$6,500
		Sales Taxes Payable ($6,890 x 6/106)		$390
	Jan. 12	Unearned Service Revenue	$10,800
		Service Revenue		$10,800
	Jan. 14	Sales Taxes Payable	$7,700
		Cash		$7,700
	Jan. 20	Accounts Receivable	$34,587
		Sales Revenue (610 x $54))		$32,940
		Sales Taxes Payable ($32,940 x 5%)		$1,647
B.	Date	Account Titles and Explanation	Debit	Credit
	Jan. 31	Interest Expense ($18,000 x 5% x 1/12)	$75
		Interest Payable		$75
	Jan. 31	Salaries And Wages Expenses	$88,000
		FICA Taxes Payable		$6,732
		Federal Income Taxes Payable		$5,229
		State Income Taxes Payable		$1,569
		Salaries and Wages Payable		$74,470
	Jan. 31	Payroll Taxes Expenses	$6,732
		FICA Taxes Payable		$6,732
C.	Wildhorse Co.
	Balance Sheet (Partial)
	As of the end of the month January 31, 2022
	Current Liabilities
		Accounts Payable	$43,600
		Sales Taxes Payable	$2,037
		Unearned Service Revenue	$9,300
		Notes Payable	$18,000
		Interest Payable	$75
		FICA Taxes Payable	$13,464
		Federal Income Taxes Payable	$5,229
		State Income Taxes Payable	$1,569
		Salaries and Wages Payable	$74,470
	Total Current Liabilities			$167,744