On May 1, 2010, the accounting records of Sea Salt Company showed the following liability accounts and balances:
Accounts payable ......... $35,600
Short-term notes payable ...... 15,000
Interest payable ........... 950
Unearned service revenue ...... 6,000
a. On May 1, 2010, Sea Salt Company signed a six-month note for $20,000 at 6%.
b. During May, Sea Salt Company paid off the $15,000 short-term note and the interest payable shown on the May 1 balance sheet.
c. The company also paid off the beginning balance in accounts payable.
d. During the month, Sea Salt purchased $40,000 of merchandise on account.
e. Also during May, Sea Salt’s employees earned salaries of $25,000. Withholdings related to these wages were $1,550 for social security (FICA), $5,000 for federal income tax, and $2,500 for state income tax. The company will pay May salaries and taxes withheld on June 1. No entry had been recorded for salaries or payroll tax expense as of May 31.
1. Use the accounting equation to record the transactions described.
2. Show how Sea Salt Company would record the interest on the notes payable for the month of May and the salary expense and payroll tax expense.
3. Prepare the current liabilities section of the balance sheet at May 31, 2010.