Question

On January 1, 2022, the ledger of Sunland Company contained these liability accounts.

Accounts Payable $44,400
Sales Taxes 8.500
Payable Unearned Service Revenue 20,900

During January, the following selected transactions occurred.
Jan. 1 Borrowed $18,000 in cash from Apex Bank on a 4-month, 5%, $18,000 note,
5 Sold merchandise for cash totaling $5.724, which includes 6% sales taxes,
12 Performed services for customers who had made advance payments of $11.700. (Credit Service Revenue)
14 Paid state treasurer's department for sales taxes collected in December 2021. $8,500.
20 Sold 690 units of a new product on credit at $46 per unit, plus 5% sales tax.

During January, the company's employees earned wages of $64.000. Withholdings related to these wages were $4,896 for Social Security (FICA). $5,614 for federal income tax, and $1,684 for state income tax. The company owed no money related to these earnings for federal or state unemployment tax. Assume that wages earned during January will be paid during February. No entry had been recorded for wages or payroll tax expense as of January 31.

Answer 1

The student's question revolves around accounting practices for managing liability accounts and calculating a firm's accounting profit. To find the accounting profit, total expenses are subtracted from the sales revenue. Proper liability management is essential for a business's financial health.

Step-by-step explanation:

Understanding Liabilities and Profit Calculation

A student inquiry relates to the handling of various liability accounts and the calculation of accounting profit for a firm. In order to provide an accurate response, it is essential to understand the accounting principles involved in tracking liabilities, recognizing revenue, paying taxes, and wages. For instance, to compute the profit, one must deduct total expenses from the sales revenue. Provided that a firm had sales revenue of $1 million, and the expenses for labor, capital, and materials were $600,000, $150,000, and $200,000 respectively, the firm's accounting profit would be the difference which is $50,000.

When a company like Sunland Company performs transactions, such as borrowing from a bank or selling merchandise, each transaction affects the balance of their liability accounts. Revenue from sales must be recorded inclusive of sales taxes, which are then remitted to the state. In addition, when a company's employees earn wages but are not paid until the following month, the wages become accrued liabilities, highlighting obligations the company must fulfill in the future.

It is crucial for companies to manage their liabilities properly to maintain a healthy cash flow and ensure all obligations are met, including payroll and taxes. By examining Sunland Company's ledger and subsequent transactions, students can gain a comprehensive understanding of real-world business accounting practices.

Answer 2

This question pertains to accounting for Sunland Company's liabilities and payroll. Transactions include opening balances, sales with sales taxes, services rendered, and payroll details including wages and withholdings. Accurate account entries for these items are crucial for financial reporting.

Step-by-step explanation:

The student asked about various transactions for Sunland Company, involving liability accounts and payroll operations. Specifically, they detailed the opening balances of certain liability accounts on January 1, 2022, and listed several transactions that occurred in January. One significant aspect of the question is the payroll process for the employees, including gross wages and various withholdings (Social Security, federal income tax, and state income tax), as well as mentioning that these wages will be paid in February, indicating the need for an accrued expense. The overall subject involves accounting for liabilities, payroll, and the recognition of revenue, along with the calculation of taxes owed from sales and payroll.

Accounting for Payroll

To handle the payroll entries as of January 31, the company must recognize the wages expense incurred even though it has not yet been paid.

1. Record the total gross wages for the employees.
2. Account for the withholdings from the wages for Social Security, federal income tax, and state income tax.
3. Recognize the net wages payable to employees after the withholdings.
4. Consider that the company owes no money for unemployment taxes at this time.

The payroll entry will impact both the company's income statement through wages expense and the balance sheet through various liabilities associated with payroll withholdings until the wages are actually paid in February.

Accounting for Sales Taxes

Additionally, the transactions mentioned include sales where sales tax is collected. Each sale needs to have the sales revenue recognized separately from the sales tax liability, which is settled with the state treasurer's department. This is demonstrated in the transaction on January 5, where merchandise was sold with a 6% sales tax, and on January 20, with a 5% sales tax. After collection, this tax must be remitted to the government, which is seen in the payment on January 14 for sales taxes collected in the previous month.