Question

PA10-3 Recording and Reporting Current Liabilities [LO 10-2]

Lakeview Company completed the following two transactions. The annual accounting period ends December 31.

On December 31, calculated the payroll, which indicates gross earnings for wages ($60,000), payroll deductions for income tax ($6,000), payroll deductions for FICA ($4,500), payroll deductions for American Cancer Society ($2,250), employer contributions for FICA (matching), and state and federal unemployment taxes ($525). Employees were paid in cash, but payments for the corresponding payroll deductions have not yet been made and employer taxes have not yet been recorded.
Collected rent revenue of $5,625 on December 10 for office space that Lakeview rented to another business. The rent collected was for 30 days from December 12 to January 10 and was credited in full to Deferred Revenue.

Required:

1. & 2. Prepare the journal entries to record payroll on December 31, the collection of rent on December 10 and adjusting journal entry on December 31.
3. Show how any of the liabilities related to these items should be reported on the company’s balance sheet at December 31.

Answer 1

1. & 2.

Date	General Journal	Debit	Credit
Dec. 31	Salaries and wages expense	60000
	FICA payable		4500
	Charitable contributions payable		2250
	Withheld income taxes payable		6000
	Cash		47250
	(To record the payroll)
Dec. 31	Payroll tax expense	5025
	FICA payable		4500
	State and Federal unemployment taxes payable		525
	(To record the payroll tax expense)
Dec. 10	Cash	5625
	Deferred revenue		5625
	(To record unearned rent revenue received)
Dec. 31	Deferred revenue	3750
	Rent revenue ($5625 x 20/30)		3750
	(To record rent revenue earned)

3.

LAKEVIEW COMPANY
Balance Sheet (Partial)
December 31
Current Liabilities
FICA payable	9000
Charitable contributions payable	2250
Withheld income taxes payable	6000
State and Federal unemployment taxes payable	525
Deferred revenue	1875
Total current liabilities	19650