Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 18

Other accrued liabilities—payroll taxes At March 31, 2010, the end of the first year of operations at Jaryd, Inc., the firm’s accountant neglected to accrue payroll taxes of $4,800 that were applicable to payrolls for the year then ended.

Required:

a. Use the horizontal model (or write the journal entry) to show the effect of the accrual that should have been made as of March 31, 2010.

---

b. Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2010.

---

c. Assume that when the payroll taxes were paid in April 2010, the payroll tax expense account was charged. Assume that at March 31, 2011, the accountant again neglected to accrue the payroll tax liability, which was $5,000 at that date. Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2011.

Step 1 of 5

(a) Use a horizontal model (or write the journal entry) to show the effect of the accrual that should have been made as of March 31, 2010:

Horizontal model is used to present the relationship between various groups of accounts in financial statements. This model provides separate presentation for balance sheet and income statement in a single format.

The balance sheet is represented by the accounting equation, where the assets are equal to the sum of liabilities and stockholder’s equity. In the same way, the net income is equal to the difference between the revenues and expenses.