This is a part of auditing assignment. (Proli Footwear Inc. ) What is an audit i

Question

This is a part of auditing assignment. (Proli Footwear Inc. )

What is an audit issue for 3) ? Is any journal entry necessary here?

Should I make adjusting journal entries to record tax liability?

There is no Tax Payable or tax-related liability account on the Trial Balance.

3) The payroll accrual recorded on the books by client on 12/31/14 was:

Salary Expense 48,600

Bonus Expense 100,000

Accrued Expenses 148,600

EA-2 (1/2) PBC Proli Footwear Accrued Expenses December 31, 2014 Vendor Amount Proli, CT facilities: Big City Office Supply 124,380 Blue Star Restaurant Bonuses Payable Commissions Payable Connecticut Electric Proli facilities Conn Phone - Proli facilities Lucky Advertising P&P; Mobile Phone Payroll taxes-federal-due Jan 15 Payroll taxes-state-due Jan 15 Proli Accounting Temps Proli Electric Proli Florist Proli Insurance Agency Proli Propane Proli Water Company Salaries Payable Thumpem, Lumpem & Howe Warranty Payable Workers' compensation insurance agency Misc: None over $5.000 1,175 1) 400,000 E1A 87,000 75,450 192,150 357,000 25,600 87,254 19,720 35,800 63,800 27,890 788,900 66,600 136,780 2) 2) 148,600 9160 130,000 944° (tax) 424,000 731,500 3,421,011 7,344,610 Subtotal Proli, CT facilities A) 1) salary expense was debited when client recorded this acerual RP B) 2) The Exeoutive v-p of Lucky Advertising is Robbert Baddude, the brother of Brian Baddlude. is there a conflict of interest or related party issue? RP There is a rebted party hcsue>RE The payroll ácorual recorded on the books by client on 12/31/14 was: salary Expense Bonns Expense 48,600 100,000 Accrued Expenses A)1A- benus Expense 148,600o salny expense (To conect misclassified vecord) MLC and Pol

Explanation / Answer

In the given case, year end entry for salary and bonus is required to be revised.

1. Taxes are not being withheld from the salary and therefore, it is required to be accounted for. like Social security and medicare tax. Moreover, since there is a account head for payroll taxes payable due of Jan 15, company is required to account for employer payroll taxes in a new account head.

2. As an auditor, it is also important that each item of transaction is accounted for in correct head. In the given case, it is visible that bonus payable is a different head in accrued expense broad head and therefore, bonus of $100,000 is also required to be clubbed in bonus payable head.

In the light of above given cases, it is necessary for you to revise the entry by passing an adjustment entry at year end to account or taxes payable by employer and also categorizing the bonus payable in correct head.

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