Question

PA10-3 Recording and Reporting Current Liabilities [LO 10-2] Lakeview Company completed the following two transactions. The annual accounting period ends December 31. a On December 31, calculated the payroll, which indicates gross earnings for wages ($48,000). payroll deductions for income tax ($4,800), payroll deductions for FICA ($3,600), payroll deductions for American Cancer Society ($1,800), employer contributions for FICA (matching), and state and federal unemployment taxes ($420). 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. b. Collected rent revenue of $5,400 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 adjustingjournal entry esi on December 31 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

Solution

Lakeview Company

Journal Entries and adjusting entries:

Date	Account Titles	Debit	Credit
Dec-31	Salaries and wages expense	$48,000
	Withheld income taxes payable		$4,800
	Charitable contributions payable		$1,800
	FICA Payable		$3,600
	Cash		$37,800
Dec-31	Payroll Tax Expense	$4,020
	FICA Payable		$3,600
	State and Federal Unemployment Taxes Payable		$420
Dec-10	Cash	$5,400
	Unearned Rent Revenue		$5,400
Dec-31	Unearned Rent Revenue	$3,600
	Rent Revenue		$3,600

Note: computation of earned portion of rent revenue:

Unearned rent revenue = $5,400

Rent is for 30 days, rent per day = 5,400/30 = $180

Rent for 20 days in December (Dec 12 – Dec 31) = 20 days x $180 = $3,600

Balance in Unearned rent revenue = $180 x 10 days = $1,800

(rent revenue for Jan 1 – Jan 10)

Balance sheet at December 31 –

Lakeview Company
Balance Sheet (Partial)
At December 31
Current Liabilities
Payroll deduction for income taxes payable	$4,800
Payroll deduction for FICA	$3,600
Charitable Contributions Payable	$1,800
State and Federal unemployment taxes payable	$4,020
Unearned Rent Revenue	$1,800
Total Current Liabilities	$16,020