Day 150: Study Day

Prepare the journal entry for the following transactions:

1. The May 1 payroll register showed Gross Pay of $400,000. Employees are paid one week after the end of a pay period. The only deductions are those required by statute (use the following rates: 6.2% and 1.45% for the FICA amounts, hypothetical federal percentage of 15%, and a state rate of 5%).
2. The company also records payroll taxes at the same time as they record the payroll. Use the following rates: 6.2% and 1.45% for the FICA amounts, 5.4% and .8% for the unemployment taxes.
3. The May 15 payroll register showed Gross Pay of $500,000. Employees are paid one week after the end of a pay period. The only deductions are those required by statute (use the following rates: 6.2% and 1.45% for the FICA amounts, hypothetical federal percentage of 15%, and a state rate of 5%).
4. The company also records payroll taxes at the same time as they record the payroll. Use the following rates: 6.2% and 1.45% for the FICA amounts, 5.4% and .8% for the unemployment taxes.
5. On May 16, Minute Services, Inc. issued a 60-day, 4% interest-bearing note with a face amount of $500,000 for the purchase of office equipment.
6. On the maturity date, Minute Services, Inc. paid the above note, in full.
7. On August 19, Fudd Chicken Company borrowed cash from the Bank of Smallsvile by issuing a 90-day, 6% discounted note with a face amount of $200,000.
8. On the maturity date, Fudd Chicken Company paid the above note, in full.

Review Questions:

1. Compare and contrast the following terms: borrower, debtor, creditor, lender.
2. Create a list that classifies different liabilities as either typically long-term or current:
3. Which liabilities would usually be the largest for a company?
4. As it relates to an interest-bearing note, write the formulas to calculate the following: 
• Interest =
• Maturity Value = 
5. Where is Interest Expense recorded on the Income Statement?
6. As it relates to discounted notes, write the formulas to calculate the following:
• Proceeds =
• Discount =
• Maturity Value =
7. Describe the primary differences between an interest-bearing note and a discounted note:
8. Identify the most likely classification of the following accounts: (the first three are done for you; be specific in your answer)
• cash: current asset
• land: long-term asset
• rent expense: operating expense
• note payable:
• mortgage payable:
• interest expense:
9. Use T-accounts or journal entries to illustrate the transactions needed to issue and then pay an interest-bearing note payable for cash:
10. Using T-accounts or journal entries, illustrate the transactions needed to issue and pay a discounted note payable for cash:
11. Why is accurate and timely payroll accounting so important?
12. What items are included in gross pay and how are they calculated?
13. What are the rules associated with overtime pay?
14. What is the formula for calculating net pay?
15. List and describe the different forms used in a payroll system:
16. List and describe the different required (statutory) deductions, including calculations, limits, requirements, and origin if applicable:
17. List and describe various voluntary deductions:
18. List and describe the different employer payroll taxes, including calculations, purpose, and procedures if applicable: