Question

The following transactions apply to Park Co. for Yeart 1. Received $50,000 cash from the issue of common stock. 2 Purchased Inventory on account for $180,000. 3. Sold Inventory for $250,000 cash that had cost $140,000. Sales tax was collected at the rate of 5 percent on the Inventory sold 4. Borrowed $50,000 from First State Bank on March 1, Year 1. The note had a 7 percent interest rate and a one-year term to maturity. 5. Pald the accounts payable (see transaction 2). 6. Paid the sales tax due on $190,000 of sales. Sales tax on the other $60.000 is not due until after the end of the year. 7. Salaries for the year for one employee amounted to $46,000. Assume the Social Security tax rate is 6 percent and the Medicare tax rate is 1.5 percent. Federal income tax withheld was $5,300. 8. Pald $5,800 for warranty repairs on account during the year. 9. Pald $36,000 of other operating expenses during the year. 10. Pald a dividend of $2,000 to the shareholders Adjustments: 11. The products sold in transaction 3 were warranted. Park estimated that the warranty cost would be 3 percent of sales. 12 Record the accrued Interest at December 31, Year 1 13. Record the accrued payroll tax at December 31, Year 1. Assume no payroll taxes have been paid for the year and that the unemployment tax rate is 6 percent (federal unemployment tax rate is 06 percent and the state unemployment tax rate is 5.4 percent on the first $7,000 of earnings per employee).

Answer 1

	Asset			=	Liabilities																		+	Stockholders equity
	cash	+	Inventory	=	Accounts payable	+	Sales tax payable	+	Employ.Inc tax payable	+	FICA SS payable	FICA-Medi tax payable	+	Fed unemply tax payable+	+	State Unemploy.tax payable	+	warranty payable	+	Interest payable	+	Note payable	+	common stock	+	retained earning	Account title for earning
1	50000																							50000
2			180000		180000
3a	262500						12500 [250000*5%]																			250000	Revenue
3b			-140000																							-140000	expense
4	50000																					50000
5	-180000				-180000
6	-9500   [190000*.05]						-9500
7	-33250								5300		2760   [46000*6%]	690 [46000*1.5%]														-42000	salary expense
8	-5800																									-5800	Repair expense
9	-36000																									-36000	other expense
10	-2000																									-2000	dividend
11																		7500   [250000*3%]								-7500	warranty expense
12																				2917   [50000*.07*10/12 ]						-2917	Interest expense
13											2760 (employer portion)	690		42   (7000*.6%)		378   (7000*5.4%)										-3870	payroll tax expense
TOTAL	95950	+	40000	=	0	+	3000	+	5300	+	5520	1380	+	42	+	378	+	7500	+	2917	+	50000	+	50000	+	9913

**Interest on note being accrued for 10 months [1Mar- 31dec]