Question

Part 1

Lynbrook, Inc. has decided to begin processing monthly payroll transactions “in house”, rather than using a Payroll Service Company, like ADP. On January 31, 2020, the end of the first monthly pay period of the year, Lynbrook’s payroll register showed that employees earned $20,000 of office salaries and $50,000 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $14,000 of federal income taxes, $1,300 of medical insurance deductions, and $900 of union dues. No employee earned more than $7,000 in January.

Required:

1. a) Prepare the journal entry related to the gross pay earned by employees on January 31. (Round amounts to the nearest whole dollar.)

2. b) Prepare the journal entry related to the payroll taxes from the January 31 payroll. Lynbrook’s state unemployment tax rate is 4% of the first $7,000 earned by each employee. The federal unemployment tax rate is 0.6%, also on the first $7,000 earned by each employee. (round amounts to the nearest whole dollar)

Part 2

As the controller of Lynbrook, Inc., you identified the following transactions that involved liabilities during 2020:

1. a) Purchased merchandise on credit for $80,000. (Note: Assume a periodic inventory system.)

2. b) Year-end estimated income taxes payable, but unpaid, for the year were $113,615.

3. c) Sold merchandise (costing $2,500) on account for $3,636, including state sales taxes of

   $180. (Note: Assume a periodic inventory system.)

4. d) Borrowed cash under an $80,000, 6%, 120-day notes payable on December 1, 2020.

   Prepare the entry on 12/1/20 to record the note payable and the entry on 12/31/20 to

   accrue interest for the period.

Required:

Prepare the entry to record each of these transactions (treat each transaction independently).

Answer 1

Part 1 - Question a:

Answer to Part 1 - Question b:

Answer to Part 2: