Question

Q4. a) Sarah Corporation has an annual payroll of $150,000. At December 31, Sarah Corporation owes salaries of $7,600 on which employee withholdings payable are $1,200 and employee benefits payable by the company are $1,000. The company has calculated its share of Canada Pension Plan, Employment Insurance, and other employee benefits to be 6% of payroll expense. The company will pay these amounts early next year. Show what Sarah will report for the foregoing on its income statement and year-end balance sheet.

Answer 1

Answer:

A). Income Statement:

Particulars	Amount
Salaray Expenses	$ 1,50,000
Payroll Expneses	$       9,000
($1,50,000 *6%)
Total Payroll Costs	$ 1,59,000

Balance Sheet:

Particulars	Amount
Current Liabilities:
Salaries Payable	$       7,600
Employee Withholding Tax Payable	$       1,200
Employee Benefits Payable	$       1,000
Total Current Liabilities	$      9,800

B) A.Issuance of the Bonds on January 31.

Date	Particulars	Debit	Credit
31-Jan	Cash A/c	$ 97,000
	Discount on Issue of Bonds A/c	$   3,000
	To Bonds Payable A/c		$ 1,00,000
	(To Record Issue of Bonds)

Working:

Particulars	Amount
Bonds Payable Face Value	$ 1,00,000
Issue Price ( 97% of Face Value)	$    97,000
Discount on Issue of Bonds	$      3,000

B.Entries for Semi-Annual Interest Payament and Discount Amortization on July-31:

Date	Particulars	Debit	Credit
31-Jul	Interest Expenses A/c	$   3,150
	To Discount on Issue of Bonds A/c		$          150
	To Cash A/c		$       3,000
	(To Record Payment of Interest)

Working:

Particulars	Amount
Total Interest Payment Terms	$            20
Discount Per Term($3,000 /20)	$          150

C.Entries for Interest Accural and Dicount Amortization on December 31.

Date	Particulars	Debit	Credit
31-Dec	Interest Expenses A/c	$   2,625
	To Discount on Issue of Bonds A/c ($150/6*5)		$          125
	To Interest Payable A/c ($3,000 /6*5)		$       2,500
	(To Record Interest Accured)

Workings:

Particulars	Amount
Cash Interest (6% $1,00,000 for 6 Months)	$       3,000
Discount Per Term($3,000 /20)	$          150
Total Interest Expenses	$      3,150

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