4. Anson’s Auto Parts had cash sales of $10,000 for the month of April. Sales are subject to a 6 1/2
percent sales tax and an 8 percent excise tax. In the journal provided, prepare a compound entry
without explanation to record Anson’s Auto Parts sales and related sales and excise taxes for the
month.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
5. Kahn Company had cash sales of $60,000 for the month of June. Sales are subject to a 4 1/2 percent
sales tax and a 6 percent excise tax. In the journal provided, prepare a compound entry without
explanation to record Kahn’s sales and related sales and excise taxes for the month.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Apr.
Cash
Sales
Sales Tax Payable ($10,000 .065)
Excise Tax Payable ($10,000 .08)
6. Dougan Company manufactures and sells widgets. Each widget costs $60 and sells for $100. Each
widget carries a warranty that provides for free replacement if it fails for any reason during the next 36
months. In the past, 4 percent of the widgets have had to be replaced under the warranty. During May,
Dougan sold 2,000 widgets and replaced 150 under warranty. Calculate the product warranty expense
for the month. Show your computation.
7. Contrast the accounting problems presented by definitely determinable liabilities and those associated
with estimated liabilities.
8. Hatley Corporation borrowed $10 million to finance the construction of a new building. In addition to
the annual interest that is not included in the face, one-tenth of the principal amount borrowed is to be
repaid each year. If the borrowing occurred one month prior to year end, how should the loan be
presented on the upcoming balance sheet?
9. Explain why the cost of employing someone is more than just the wage or salary paid to the employee.
10. Packett Company allows each employee two weeks’ paid vacation after the employee has worked at
the company for one year. On the basis of past experience, management estimates that 80 percent of
employees will qualify for vacation pay this year. Assume that the March payroll is $300,000.
Compute the vacation pay expense for the month assuming 50 working weeks a year. Show your
computation.
11. Darla Katz earns an hourly wage of $12, with time-and-a-half pay for hours worked over 40 per week.
During the most recent week, she worked 46 hours, her federal tax withholding totaled $62, her state
tax withholding totaled $18, and $3 was withheld for union dues. Assuming a 6.2 percent social
security tax rate and a 1.45 percent Medicare tax rate, prepare the entry without explanation in the
journal provided to record Katz’s wages and related liabilities. Round to the nearest penny.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
12. State whether each situation below implies a definitely determinable liability (D), an estimated liability
(E), a contingent liability (C), or no liability at all (X).
_____ 1. Lawsuit filed against the company
_____ 2. Payroll liabilities
_____ 3. Unearned revenues
_____ 4. Accounts payable
_____ 5. Product warranty liability
_____ 6. Dividend to be declared in future
_____ 7. Current portion of long-term debt
_____ 8. Discounted notes receivable
_____ 9. Liability for vacation pay
_____ 10. Guarantee of debt of other companies
13. Under what circumstances is a contingent liability reflected in the accounting records as though an
actual liability exists?
14. Calculate answers to the following questions:
a. To what amount will an $800 deposit grow, assuming 9 percent annual interest, five years, and
simple interest?
b. To what amount will a $500 deposit grow, assuming 10 percent annual interest paid semiannually,
three years, and simple interest?
15. Calculate answers to the following questions using future value and/or present value tables.
a. If an accumulation of $1,000 is desired at the end of four years, what bank deposit must be made
now to accomplish that goal, assuming 10 percent interest compounded annually?
b. A deposit of $600 made at the end of every six months for five years would grow to what amount,
assuming 8 percent interest compounded semiannually. Round amounts to the nearest dollar.
16. Calculate answers to the following questions using future value and/or present value tables. Round
amounts to the nearest dollar.
a. What is the present value of receiving $1,000 at the end of each year for six years, assuming 7
percent interest compounded annually?
b. What amount must be deposited at the bank today to grow to $300 in five years, assuming 14
percent interest compounded semiannually?
17. You win the grand prize and can choose between receiving $100,000 today or $20,000 per year for
seven years. Ignoring income taxes, how would you go about making your decision?
18. The owner of an amusement park is considering installing a new ride. The ride would cost $10,000,
produce a net cash flow of $1,250 annually, and last for nine years.
a. Assuming an interest rate of 10 percent, what is the present value of the net cash flows expected
from the ride? Use future value and/or present value tables in calculating your answer. Round amounts
to the nearest dollar.
b. Should the ride be purchased?
19. Seacrest Company purchased a machine on January 2, 2010. Under the terms of the purchase
agreement, the company is required to make 14 quarterly installment payments of $29,000 each,
beginning April 1, 2010. Assuming that the interest rate is 16 percent compounded quarterly,
determine the purchase price of the machine. Use future value and/or present value tables in
calculating your answer.
20. Prepare journal entries without explanations for the following transactions involving notes payable for
Willson Company, whose fiscal year ends September 30.
Sept.
10
Received cash for a 60-day, 12 percent, $10,000 note payable. Interest is in
addition to the face value.
30
Made end-of-year adjusting entry to accrue interest expense for the note.
Nov.
9
Paid amount due on the note plus interest.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
21. Prepare journal entries without explanations for the following transactions involving notes payable for
Gomez Company, whose fiscal year ends June 30.
June
20
Paid a trade account payable with a 90-day, 9 percent $60,000 note. Interest is
in addition to the face value.
30
Made end-of-year adjusting entry to accrue interest expense for the note.
30
Made end-of-year closing entry pertaining to interest expense.
Sept.
18
Paid amount due on note, plus interest.
General Journal
Page 1
Nov.
Notes Payable
Cash
Date
Description
Post.
Ref.
Debit
Credit
22. Lee Provo is paid $8 per hour, plus time-and-one-half for hours over 40 for a given week. During the
week of January 21, Provo worked 46 hours. Social security taxes are 6.2 percent, Medicare taxes are
1.45 percent, $50 is withheld for federal income taxes, $12 is withheld for state income taxes, and $15
is withheld for medical insurance. In addition, Provo’s employer must pay social security taxes of 6.2
percent, Medicare taxes of 1.45 percent, state unemployment taxes of 5.4 percent, and federal
unemployment taxes of .8 percent. Calculate (a) Provo’s gross earnings, (b) Provo’s take-home pay, (c)
the employer’s payroll taxes expense, and (d) the total cost of employing Provo for the week. Round all
amounts to the nearest penny.
23. Jim Janney is paid $6 per hour, plus double-time for hours worked on weekends. During the two-week
period ending February 5, Janney worked 70 hours on weekdays and 8 hours on weekends. Social
security taxes are 6.2 percent, Medicare taxes are 1.45 percent, $65 is withheld for federal taxes, $18 is
withheld for state income taxes, and $24 is withheld for charities. In addition, Janney’s employer must
pay social security taxes of 6.2 percent, Medicare taxes of 1.45 percent, federal unemployment taxes of
.8 percent, and state unemployment taxes of 5.4 percent. Calculate (a) Janney’s gross earnings, (b)
Janney’s net pay, (c) the employer’s payroll taxes expense, and (d) the total cost of employing Janney
for the two-week period. Round all amounts to the nearest penny.
24. The following totals for the month of March were taken from the payroll register of the Foothill
Company:
Salaries (all subject to social security and Medicare taxes)
$14,000
Federal income taxes withheld
3,500
Medical insurance deductions
700
Life insurance deductions
400
Salaries subject to unemployment taxes
11,000
Medicare tax rate
1.45%
Social security tax rate
6.2%
$60,000 .09 80/365 = $1,183.56
Prepare journal entries without explanations to record the following. Round amounts to the nearest
dollar.
a. Monthly payroll
b. Accrual of employer’s payroll taxes (assuming the social security and Medicare taxes to be equal to
the amount for employees, a FUTA tax of .8 percent, and a state unemployment tax of 5.4 percent)
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Salaries Expense
25. Calculate answers to the following questions using future value and/or present value tables.
a. Tally purchased machinery by executing a $30,000 non-interest-bearing note due in four years. For
how much should the machinery be recorded, assuming that the going rate for similar notes is 6
percent?
b. Mindy Kwon is making bank deposits of $3,000 at the end of each year for five years, for purposes
of buying a car. Assuming an interest rate of 7 percent, how expensive car will she be able to
purchase?
c. To how much will $2,000 grow, assuming it is invested for 2-1/2 years, with interest of 8 percent,
compounded quarterly?
d. Liz Astor would like to make a lump-sum deposit today so that she can withdraw $10,000 at the end
of each year for the next three years. Assuming a 9 percent interest rate, what should she invest today?
26. Calculate answers to the following questions using future value and/or present value tables.
a. If $100 is deposited in an account paying 8 percent simple interest, what will be the value of the
account in five years?
b. If an accumulation of $4,000 is desired at the end of four years, what amount must be deposited now
to accomplish that goal, assuming 12 percent interest compounded annually?
c. A deposit of $1,000 made at the end of every six months for five years will grow to what amount,
assuming 10 percent interest compounded semiannually?
d. What is the present value of $150 received at the end of each year for 4 years, assuming 9 percent
interest compounded annually?
e. What amount must be deposited at the bank today to grow to $10,000 in five years, assuming 14
percent interest compounded semiannually?