At December 31, 2015, the end of the first year of operations at Yoste Inc., the

Question

At December 31, 2015, the end of the first year of operations at Yoste Inc., the firm's accountant neglected to accrue payroll taxes of $28,700 that were applicable to payrolls for the year then ended. (a.) Write the journal entry or use the horizontal model to show the effect of the accrual that should have been made as of December 31, 2015. (b.) Determine the income statement and balance sheet effects of not accruing 2015 payroll taxes at December 31, 2015 (assuming that the payroll taxes were not accrued, as originally stated).

Explanation / Answer

a. The journal entry that should have been made as of December 31, 2015:

b. Income statement effect : No effect.

Balance Sheet effect: Liabilities ( payroll taxes payable) understated, and assets (cash) understated.

Date Account Titles Debit Credit $ $ December 31, 2015 Salaries ans wages expense xxx Payroll taxes payable 28,700 Cash xxx

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