Recording and Reporting Current Liabilities The following is a list of liability

Question

Recording and Reporting Current Liabilities The following is a list of liability accounts on the ledger of Chop House Incorporated on January1: Sales Tax Payable $7,500 Accounts Payable $9,500 Unearned Revenue $16,500 The following transactions occured during the month of January: Jan 1 Borrowed $25,000 from Atlanta Bank on a 6-month, 6% note. Jan 9 Provided service for customers who had paid $6,000 in advance Jan 15 Paid state treasurer for sales taxes collected in december, $7,500 Jan 18 Bought inventory on credit for $12,000. Jan 23 Sold goods on credit for $3,000, plus 7% sales tax. The employees of the Chop HOuse earned gross salaries of $45,000 during January. Withholdings were $2,500 for Social Security $4,000 for federal income tax, and $1,900 for state income tax. The employer share of FICA taxes was also $2,500. Salaries earned in January will be paid during February. Required: A. Prepare journal entries for the January transactions. Assume that purchases are recorded directly into the inventory account. B. Prepare adusting entries at January 31 related to salaries, payroll taxes, and notes payable. C. Create the current liability section of the blaance sheet at January 31.

Explanation / Answer

A.journal entries:

1-jan

Bank A/c Dr. $25000

To 6%note payable a/c $25000

9-jan

unearned income A/c Dr. $6000

To Sale A/c $6000

15-jan

Sale Tax Payable A/c Dr. $ 7500

To Bank A/c $7500

18-jan

Purchase A/c Dr. $12000

To a/c payable a/c $12000

23-jan

A/c receivable a/c Dr. $3210

To Sale A/c $3000

To Sale tax payable A/c $210

B. adjusting entries:

31-jan

Salary A/c dr. $45000

To Salary payable A/c $36600

To Withholding tax payable a/c $8400

31-jan

Fica taxes a/c Dr. $2500

Fica taxes payable a/c $2500

31-jan

Interest on 6% note a/c Dr. $250

To interst payable a/c $250

C. balance sheet section

Balance Sheet 31 Jan Liability Amount 6% note 25000 accrud interet 250 unearned income 10500 sale tax payable 210 account payable 21500 salary payable 36600 tax payable 10900 Total of liability 104960

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