Chapter 7, Problem 7.7E

Exercise 7.7

LO 4

Other accrued liabilities-payroll taxes At March 31, 2016, the end of the first year of operations at Lukancic, Inc., the firm’s accountant neglected to accrue payroll taxes of $9,600 that were applicable to payrolls for the year then ended.

Required:

1. 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, 2016.
2. Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2016.
3. Assume that when the payroll taxes were paid in April 2016, the payroll tax expense account was charged. Assume that at March 31, 2017, the accountant again neglected to accrue the payroll tax liability’, which was $10,000 at that date. Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2017.