1. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers

Question

1. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the sales transaction is:

A. Debit Accounts Receivable $4,000; credit Sales $4,000

B. Debit Notes Receivable $4,000; credit Sales $4,000

C. Debit Accounts Receivable $4,060; credit Sales $4,060

D. Debit Notes Receivable $4,060; credit Sales $4,060

E. Debit Notes Receivable $4,000; debit Interest Receivable $60; credit Sales $4

2. Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45% for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey’s earnings?

A. $1,375.02

B. $746.50

C. $962.06

D. $1,027.86

E. $680.70

Explanation / Answer

1. B. Debit Notes Receivable $4,000; credit Sales $4,000

Reason: In this case the debtor is giving a note for payment so note receivable will be debited and sales will be credited.

2. D. $1,027.86

Calculation: Earnings = 4,538

FICA tax total = 6.2 + 1.45 = 7.65%

FICA tax = 4,538 x 7.65% = $347.16

Add: Income Tax = 680.70

Total withholding = $1,027.86

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