161. Darius Company has the following information for the pay period of January 15 – 31, 20xx.
Gross payroll
$20,000
Federal income tax withheld
$2,500
Social security rate
6%
Federal unemployment tax rate
.8%
Medicare rate
1.5%
State unemployment tax rate
5.4%
162. An employee receives an hourly rate of $45, with time and a half for all hours worked in excess of 40
during the week. Payroll data for the current week are as follows: hours worked, 48; federal income tax
withheld, $950; Social security tax rate, 6.5% on maximum of $100,000; and Medicare tax rate, 1.5% on all
earnings; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation
tax, .8% on the first $7,000.
Calculate the employer’s payroll tax expense if:
a. this is the first payroll of the year and the employee has no cumulative earnings for the year
to date.
b. the employee’s cumulative earnings for the year prior to this week equal $6,200.
c. the employee’s cumulative earnings for the year prior to this week equal $98,700.
Employee wages = (40 x $45 + 8 x $67.50) $2,340
163. The following totals for the month of February were taken from the payroll register of Arcon Company:
Salaries expense
Social security and medicare taxes withheld
Income taxes withheld
Retirement savings
Salaries subject to federal and state unemployment
taxes of 6.2%
How much is the total payroll expense for Arcon Company for this payroll?
164. According to a summary of the payroll of Sinclair Company, $505,000 was subject to the 6.0% social
security tax and $545,000 was subject to the 1.5% Medicare tax. Also, $10,000 was subject to state and federal
unemployment taxes.
Required:
(1)
Calculate the employer’s payroll taxes using the following rates: State unemployment, 4.2%; Federal unemployment, 0.8%.
(2)
Journalize the entry to record the accrual of payroll taxes.
(1)
Social security tax (6% ´ $505,000)
$30,300
State unemployment (4.2% ´ $10,000)
420
$38,975
(2)
Payroll Tax Expense
38,975
Social Security Tax Payable
30,300
Medicare Tax Payable
8,175
State Unemployment Tax Payable
420
165. Martin Services Company provides their employees vacation benefits and a defined contribution pension
plan. Employees earned vacation pay of $39,500 for the period. The pension plan requires a contribution to
the plan administrator equal to 9% of employee salaries. Salaries were $750,000 during the period. Provide
the journal entry for (a.) the vacation pay and (b.) the pension benefit.
166. Below are two independent sets of transactions for Welcott Company:
(1) Welcott provides its employees with varying amounts of vacation per year, depending on the length of
employment. The estimated amount of the current year’s vacation pay is $78,000. Journalize the adjusting
entry required on January 31, the end of the first month of 2010, to record the accrued vacation pay.
(2) Welcott maintains a defined contribution pension plan for its employees. The plan requires quarterly
installments to be paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of
each quarter. Assuming that the pension cost is $119,600 for the quarter ended December 31, journalize entries
to record (a) the accrued pension liability on December 31 and (b) the payment to the funding agent on January
15.
167. Ecco Company sold $150,000 of kitchen appliances during September under a 6 month warranty. The
cost to repair defects under the warranty is estimated at 6% of the sales price. On October 15 a customer
required a $200 part replacement, plus $85 labor under the warranty.
Provide the journal entry for (a.) the estimated expense on September 30 and (b.) the October 15 warranty
work.
168. Florida Keys Construction installs swimming pools. They calculate that warranty obligations are 3% of
gross sales. For the year just ending Florida Keys’ gross sales were $1,450,000. Due to previous quarter
recognitions, the Warranty Liability account has a credit balance of $28,700. Determine the year’s total
warranty liability and journalize any necessary value to establish the year’s liability at December 31st.
Due to sales, $1,450,000, warranty liability is $43,500 ($1,450,000 ´ 3%). Since $28,700 has already been
recognized, $14,800 (or $43,500 – $28,700) must still be recognized.
169. Aqua Construction installs swimming pools. They calculate that warranty obligations are 5% of gross
sales. For the year just ending Aqua’s gross sales were $1,500,000. Due to previous quarter recognitions, the
Warranty Liability account has a credit balance of $48,700. Determine the year’s total warranty liability and
journalize any necessary value to establish the year’s liability at December 31st.
Due to sales, $1,500,000, warranty liability is $75,000 ($1,500,000 ´ 5%) . Since $48,700 has already been
recognized, $26,300 ($75,000 – $48,700) must still be recognized.
170. Lamar Industries warrants its products for one year. The estimated product warranty is 3% of
sales. Assume that sales were $190,000 for June. In July, a customer received warranty repairs requiring $185
of parts and $50 of labor.
Required:
(1)
Journalize the adjusting entry required at June 30, the end of the first month of the current year, to record the accrued product
warranty.
(2)
Journalize the entry to record the warranty work provided in July.
171. Hadley Industries warrants its products for one year. The estimated product warranty is 4% of
sales. Assume that sales were $210,000 for June. In July, a customer received warranty repairs requiring $205
of parts and $75 of labor.
Required:
(1)
Journalize the adjusting entry required at June 30, the end of the first month of the current year, to record the accrued product
warranty.
(2)
Journalize the entry to record the warranty work provided in July.
(1)
Product Warranty Expense
8,400
Product Warranty Payable
8,400
(2)
Product Warranty Payable
Supplies
Wages Payable
(1)
Product Warranty Expense
5,700
Product Warranty Payable
5,700
To record warranty
expense for June,
(2)
Product Warranty Payable
Supplies
Wages Payable
172. The current assets and current liabilities for Kolbie Company and Newton Company are shown as follows
at the end of 2012.
Kolbie Company ( in millions)
For the Year ending December 31,
2012
Newton Company (in millions)
For the Year ending December 31,
2012
Current Assets:
Cash and cash equivalents
$8,352
$8,546
Short-term investments
6,034
752
Accounts receivable
3,029
5,152
Inventories
346
660
Other current assets*
2,195
2,829
Total current assets
$19,956
$17,939
Current Liabilities:
Accounts payable
$4,970
$10,430
Accrued and other current liabilities
3,329
6,361
Total current liabilities
$8,299
$16,791
*These represent prepaid expenses and other non-quick current assets.
Required:
(1) Determine the quick ratio for both companies. Round to two decimal places.
(2) Interpret the quick ratio difference between the two companies.
(1)
Quick Ratio = Quick Assets / Current Liabilities
Kolbie Co.:
Quick Ratio = ($19,956 – 346 – 2,195) / $8,299 = 2.10
Newton Co.:
Quick Ratio = ($17,939 – 660 – 2,829)/ $16,791 = 0.86
173. The Core Company had the following assets and liabilities as of December 31, 2012:
ASSETS
Cash
$58,000
Accounts receivable
25,000
Inventory
20,000
Equipment
50,000
LIABILITIES
Current portion of long-term debt
20,000
Accounts payable
12,000
Long-term debt
25,000
Calculate: Current Ratio, Working Capital and Quick Ratio
174. On October 1, Ramos Co. signed a $90,000, 60-day discounted note at the bank. The discount rate was
6%, and the note was paid on November 30. (Assume a 360-day year is used for interest calculations.)
(a)
Journalize the entries for October 1 and November 30.
(b)
Assume that Ramos Co. signed a 6% note. Journalize the entries for October 1 and November 30.
(a)
Oct. 1
Cash
89,100
Interest Expense
Notes Payable
90,000
Nov. 30
Notes Payable
90,000
Cash
90,000
(b)
Oct. 1
Cash
90,000
Notes Payable
90,000
Nov. 30
Notes Payable
90,000
Interest Expense
Cash
90,900
175. Journalize the following entries on the books of the borrower and creditor. Label accordingly. (Assume a
360-day year is used for interest calculations.)
Jun. 1
Regis Co. purchased merchandise on account from Winthrop Co., $60,000, terms n/30.
Jun. 30
Regis Co. issued a 60-day, 5% note for $60,000 on account.
Aug. 29
Regis Co. paid the amount due.
Regis Co. (Borrower)
June 1
Merchandise Inventory
60,000
Accounts Payable
60,000
Accounts Payable
60,000
Notes Payable
60,000
Aug. 29
Notes Payable
60,000
Interest Expense
Cash
60,500
Winthrop Co. (Creditor)
June 1
Accounts Receivable
60,000
Sales
60,000
Notes Receivable
60,000
Accounts Receivable
60,000
Aug. 29
Cash
60,500
Notes Receivable
60,000
Interest Revenue
176. Journalize the following entries on the books of Winston Co. for August 1, September 1, and November
30. (Assume a 360-day year is used for interest calculations.)
Aug. 1
Winston Co. purchased merchandise for $75,000 on account from Bagley Co., terms n/30.
Sept. 1
Winston Co. issued a 90-day, 6% note for $75,000 on account.
Nov. 30
Winston Co. paid the amount due.
Aug. 1
Merchandise Inventory
75,000
Accounts Payable
75,000
Sept. 1
Accounts Payable
75,000
Notes Payable
75,000
Nov. 30
Notes Payable
75,000
Interest Expense
1,125
Cash
76,125
177. The following information is for employee Ella Dodd for the week ended March 15.
Total hours worked: 48
Rate: $15 per hour, with double time for all hours in excess of 40
Federal income tax withheld: $200
United Fund deduction: $50
Cumulative earnings prior to current week: $6,400
Tax rates:
Social security: 6% on maximum earnings of $100,000. Medicare tax:
1.5% on all earnings.
State unemployment: 3.4% on maximum earnings of $7,000; on employer
Federal unemployment: 0.8% on maximum earnings of $7,000; on employer
(a)
Determine (1) total earnings, (2) total deductions, and (3) cash paid.
(b)
Determine each of the employer’s payroll taxes related to the earnings of Ella Dodd for the week ended March 15.
(1)
40 hours at $15
$600.00
(2)
Deductions:
Income tax
$200.00
United Fund deduction
50.00
Medicare tax, 1.5% of $840
12.60
313.00
(3)
Cash paid
$527.00
State unemployment tax, 3.4% ´ $600
20.40
Federal unemployment tax, 0.8% ´ $600
4.80
Total
$88.20
178. The summary of the payroll for the monthly pay period ending July 15 indicated the following:
Sales salaries
$125,000
Federal income tax withheld
32,300
Office salaries
35,000
Medical insurance withheld
7,370
Social security tax withheld
10,200
Medicare tax withheld
2,550
Journalize the entries to record (a) the payroll and (b) the employer’s payroll tax expense for the month. The state unemployment tax rate is 3.1%,
and the federal unemployment tax rate is 0.8%. Only $25,000 of salaries are subject to unemployment taxes.
Sales Salaries Expense
125,000
Office Salaries Expense
35,000
Social Security Tax Payable
10,200
Medicare Tax Payable
2,550
Federal Income Tax Payable
32,300
Medical Insurance Payable
7,370
Salaries Payable
107,580
Payroll Taxes Expense
13,725
Social Security Tax Payable
10,200
Medicare Tax Payable
2,550
State Unemployment Tax Payable
Federal Unemployment Tax Payable
179. Excel Products Inc. pays its employees semimonthly. The summary of the payroll for December 31,
2012 indicated the following:
Salary expense
$120,000
Federal income tax withheld
20,000
For the year ended 2012, $40,000 of the December 31 payroll is subject to social security tax of 6%; $120,000 is subject to Medicare tax of 1.5%;
$10,000 is subject to state unemployment tax of 4.3% and federal unemployment tax of 0.8%. As of January 1, 2013 all of the $120,000 is subject to
all payroll taxes. Present the journal entries for payroll tax expense if the employees are paid (a) December 31 of the current year, (b) January 2 of
the following year.
Social Security Tax, 6% on $40,000
$2,400
State Unemployment, 4.3% on $10,000
Federal Unemployment, .8% on $10,000
Total Payroll Tax Expense
$4,710
Payroll Tax Expense
4,710
Social Security Tax Payable
2,400
Medicare Tax Payable
1,800
Federal Unemployment Tax Payable
Medicare Tax, 1.5% on $120,000
1,800
State Unemployment Tax, 4.3% on $120,000
5,160
Federal Unemployment Tax, .8% on $120,000
960
Payroll Tax Expense
15,120
Social Security Tax Payable
7,200
Medicare Tax Payable
1,800
Federal Unemployment Tax Payable
180. Journalize the following transactions:
Dec. 31
The accrued product warranty for the year is estimated to be 1.5% of net sales. Sales for the year totaled $8,000,000, and sales
returns and allowances were $240,000.
31
The accrued vacation pay for the year is estimated to be $46,000.
31
Paid Reliable Insurance Co. $85,000 as fund trustee for the pension plan. The annual pension cost is $109,000.
181. Journalize the following transactions for Riley Corporation:
Dec. 31
The accrued product warranty for the year is estimated to be 2.5% of net sales. Sales for the year totaled $9,000,000, and sales
returns and allowances were $150,000.
31
The accrued vacation pay for the year is estimated to be $75,000.
31
Paid First Insurance Co. $55,000 as fund trustee for the pension plan. The annual pension cost is $87,000.
Dec. 31
Product Warranty Expense
221,250
Product Warranty Payable
221,250*
Vacation Pay Expense
75,000
Vacation Pay Payable
75,000
Pension Expense
87,000
Cash
55,000
Unfunded Pension Liability
32,000
Dec. 31
Product Warranty Expense
116,400
Product Warranty Payable
116,400*
*$7,760,000 ´ .015 = $116,400
Vacation Pay Expense
46,000
Vacation Pay Payable
46,000
Pension Expense
109,000
Cash
85,000
Unfunded Pension Liability
24,000
182. Several months ago, Jones Company experienced a spill of hazardous materials into the White River from
one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $405,000. The
company contested the fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally,
a homeowner has sued the company for $260,000. Although the homeowner lives 30 miles downstream from
the plant, he believes that the spill has reduced his home’s resale value by $260,000.
Jones’ legal counsel believes the following will happen in relationship to these incidents:
(a)
It is probable that the EPA fine will stand.
(b)
An out-of-court-settlement for $165,000 has recently been reached with the employee, with the final papers to be signed next
week.
(c)
Counsel believes that the homeowner’s case is much weaker and will be decided in favor of Jones Company.
(d)
Other litigation related to the spill is possible, but the damage amounts are uncertain.
Required:
(1)
Based on this information, journalize the contingent liabilities associated with the spill. Use the account “Damage Awards and
Fines” to recognize the expense for the period.
(2)
Prepare any note disclosure related to the spill.
(1)
Damage Awards and Fines
570,000
EPA Fines Payable
Litigation Claims Payable
183. For Company A and Company B:
(a)
Calculate the quick ratio for each company.
(b)
Comment on which one is more able to meet current liabilities.
Company A
Company B
Account
Dr
Cr
Dr
Cr
Cash
$21
$ 25
Cash Equivalents
8
10
Trade Notes Receivable
7
6
Accounts Receivable
6
7
Prepaid Expenses
5
5
Merchandise Inventory
14
8
Fixed Assets
20
55
Accumulated Depreciation-
Fixed Assets
$ 5
$ 25
Accounts Payable
26
8
Current Accrued Liabilities
13
19
Mortgage Payable
17
24
Capital
20
40
Total
$81
$81
$116
$116
Company A Quick ratio: $42 $39 = 1.08
Company B Quick ratio: $48 $27 = 1.78
(b)
Company B would be more liquid.