I could so use help if someone could help this would be awesome!!!! Ergo Company

Question

I could so use help if someone could help this would be awesome!!!!

Ergo Company has one employee who is paid a salary of $8,500 per month. Payroll information for the first month of the year is:

Federal and state income tax withheld

$1,275

FICA (social security and Medicare)

7.65%

Federal unemployment (FUTA and SUTA) tax rate (on the 1st $7,000 of wages)

6.2%

Insurance Premiums (paid by Employees)

$400

Part I: Prepare Ergo’s journal entry to record the first month’s salary expense and employee withholdings. Payroll tax expense will be recorded in part 2.

Part 2: Prepare Ergo’s journal entry to record employer payroll taxes for the first month’s payroll.

Notes Receivable

On September 1, 2016, Hare Today pet-supply store Co. borrowed $9,000 from Gone Tomorrow Bank, signing a 6-month, 4-percent note. Interest is to be paid at maturity. Hare Today and Gone Tomorrow both have a December 31 year-end.

1. Record the journal entry for the transaction for Hare Today on September 1, 2016.

2. Record the appropriate adjusting entry related to the note by Hare Today on December 31, 2016.

3. Record the journal entry for the receipt of the amount due to Hare Today at the note’s maturity on March 1, 2017.

Notes Payable

On September 1, 2016, Hare Today pet-supply store Co. borrowed $9,000 from Gone Tomorrow Bank, signing a 6-month, 4-percent note. Interest is to be paid at maturity. Hare Today and Gone Tomorrow both have a December 31 year-end.

1. Record the journal entry for the transaction for Gone Tomorrow on September 1, 2016.

2. Record the appropriate adjusting entry related to the note by Gone Tomorrow on December 31, 2016.

3. Record the journal entry for the payment of the amount due to Gone Tomorrow at the note’s maturity on March 1, 2017.

Federal and state income tax withheld

$1,275

FICA (social security and Medicare)

7.65%

Federal unemployment (FUTA and SUTA) tax rate (on the 1st $7,000 of wages)

6.2%

Insurance Premiums (paid by Employees)

$400

Explanation / Answer

1. The payroll taxes will be withheld by the Ergo Compnay at the time of salary payment to employees. These withheld will be shown as liability side of the balance sheet and hence will be credited and whenever paid these will be debited and cash will be credit. The entry will be -

Salaries A/c        Dr.            8,500

              To Federal and state income tax A/c      1,275

              To FICA A/c                                         650.25   (8500x7.65%)

              To Fed unemployment tax A/c              434      (7,000x6.20%) - this will be on first 7,000 only as given

              To Cash A/c                                        6,140.75

(Being salaries paid and taxes withheld)

At the time of payment -

Federal and state income tax A/c Dr.     1,275

FICA A/c    Dr.                                       650.25

Fed unemployment tax A/c Dr.              434  

           To Cash A/c                                         2,359.25

(being taxes deposited)

2.

1. At the time of lending on 1 Sept 2016 - If Gone bank is lending some amount the cash will go out hence will be credited. The bank will receive the amount of notes from Hare later on maturity which means it becomes an asset today hence will be debited -

Notes receivables 6 month 4% A/c        Dr.          9,000

          To Cash A/c                                9,000

(Being amount lent)

2.On dec 31, 4 months has been passed thus Gone bank will accrue interest for 4 month in it's books. The interest is an income hence will be credited and it will be received later on maturity thus today it becomes receivable.

Interest receivable A/c       Dr.            120 (9,000x4/100x4/12)

            To Interest income A/c                   120

(Being interest income accured)

3.On Mar 1, 2017. The amount will be received alongwith interest. The amount of interest for the six months is - 9,000*4%*6/12 = 180 out of which Gone has already accrued 120 (of 4 months) in last year. Thus remaining will be credited in interest income today. Second, the cash will be received alongwith full interest (9,000+180 = 9,180) hence will be debited. Further, Note receivable account will get closed down now hence will be credited. Also, interest receivable account will also be squarred off because Gone bank has received the full interst hence will be credited. The entry will be -

Cash A/c   Dr.               9,180

            To Interest receivable A/c         120

            To Interest income A/c              60

            To Notes receivable A/c            9,000

(being Notes settled and squarred off)

Reach out to me for doubts. thanks

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