A. Lexington Corporation’s weekly payroll of $27,830 included FICA taxes withhel

Question

A. Lexington Corporation’s weekly payroll of $27,830 included FICA taxes withheld of $1,930, federal taxes withheld of $3,400, state taxes withheld of $1,130, and insurance premiums withheld of $370. Prepare the journal entry to record Lexington’s payroll. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.

Account

B. Sport Pro Magazine sold 20,040 annual subscriptions on August 1, 2014, for $26 each. Prepare Sport Pro’s August 1, 2014, journal entry and the December 31, 2014, annual adjusting entry, assuming the magazines are published and delivered monthly. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

C1. Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $912,700 as a result of this suit. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

-what would the accounts be for this question, would it be debit lawsuit loss and credit lawsuit liability?

Account

Debit Credit

Explanation / Answer

Part A)

The journal entry would involve a debit to wages expense for the total amount of weekly payroll and a credit to federal withholding taxes payable, FICA taxes payable, state withholding taxes payable, insurance premium and the balance to cash, indicating payment of wages.

The journal entry to record the payroll is given below:

__________

Part B)

At the time of sale, the company would record a debit to cash account and a credit to unearned revenue account (as the cash has been received in advance, but the company cannot recognize as the subscription is for the complete year). On 31st December 2014, the company would recognize 5 (August 1 to December 31) months revenue by crediting the subscription revenue and reducing the balance in unearned revenue account with a debit entry.

The journal entries are as follows:

__________

Part C1)

Since, it is probable that the company will have to bear the loss, we will debit the lawsuit loss account and credit lawsuit liability account indicating accrual of loss.

Account Debit Credit Wage Expense $27,830 Cash (27,830 - 3,400 - 1,930 - 1,130 - 370) $21,000 Federal Withholding Taxes Payable $3,400 FICA Taxes Payable $1,930 State Withholding Taxes Payable $1,130 Insurance Premium Payable $370

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