At December 31, 2013, the End of the First Year

question 16

Essay

At December 31, 2013, the end of the first year of operations at Xavion Inc., the firm's accountant neglected to accrue payroll taxes of $27,700 that were applicable to payrolls for the year then ended.
(a.) Write the journal entry or use the horizontal model to show the effect of the accrual that should have been made as of December 31, 2013.
(b.) Determine the income statement and balance sheet effects of not accruing 2013 payroll taxes at December 31, 2013 (assuming that the payroll taxes were not accrued, as originally stated).
(c.) Assume that when the payroll taxes were paid in January 2014, the payroll tax expense account was charged. Assume that at December 31, 2014, the accountant again neglected to accrue the payroll tax liability, which was $20,400 at that date. Determine the income statement and balance sheet effects of not accruing 2014 payroll taxes at December 31, 2014.

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Definitions:

Realised Profit

Profit that has been actually earned and received, typically from the sale of goods, services, or assets.

External Party

An entity or individual that is outside of an organization and can include suppliers, customers, government agencies, and lenders.

Company Tax Rate

The rate at which a company is taxed on its profits by the government.

Inventories

The total amount of goods available for sale and raw materials available to produce those goods held by a company.