155.
Midwest Shipping pays employees at the end of each month. Payroll information is listed
below for January, the first month of the fiscal year. Assume that none of the employees
exceeds the Federal unemployment tax maximum salary of $7,000 in January.
Salaries
$800,000
Federal and state income taxes withheld
160,000
Federal unemployment tax rate
0.80%
State unemployment tax rate (after FUTA deduction)
3.00%
Social Security (FICA) tax rate
7.65%
Record salaries expense and payroll tax expense for the January pay period.
156.
On July 8, Compusoft receives $250,000 from a customer toward a cash sale of $1 million
for customized computer equipment to be completed on August 1. The remaining $750,000
payment is received upon delivery of the product on August 1. The equipment had a total
production cost of $700,000. What journal entries should Compusoft record on July 8 and
August 1? Assume Compusoft uses the perpetual inventory system.
157.
T. Boone Pickens football stadium at Oklahoma State University has a seating capacity of
about 60,000. Assume the stadium sells out all six home games before the season begins
and the athletic department collects $30.6 million in ticket sales.
1. What was the average price per season ticket and average price per individual game
ticket sold?
2. Record the advance collection of $30.6 million in ticket sales.
3. Record the revenue earned after the first home game was completed.
158.
During November, Wireless, Inc., makes a $1,600 credit sale excluding sales tax. The state
sales tax rate is 5% and the local sales tax rate is 1.5%. Record sales revenue and sales
tax payable.
159.
On April 1, 2018, the Electronic Superstore borrows $22 million of which $4 million is due
in 2019. Show how the company would report the $22 million debt on its December 31,
2018 balance sheet.
160.
Consultants notify management of Generic Drug that a prescription medication poses a
potential health risk. Legal counsel indicates that a product recall is probable and is
estimated to cost the company between $5 and $8 million. How will this affect the
company’s income statement and balance sheet this period?
161.
Decorative Concrete produces a concrete overlay for residential and commercial concrete
flooring. Customers have complained that one of the products results in excessive cracking.
The likelihood the company will incur a loss on this product is probable and the amount of
the loss is estimated to be somewhere between $1.5 and $3 million.
1. Should this contingent liability be reported, disclosed in a note only, or both? Explain.
2. What loss, if any, should Decorative Concrete report in its income statement?
3. What liability, if any, should Decorative Concrete report in its balance sheet?
4. What entry, if any, should be recorded?
162.
Panama Shirt Designs is a defendant in litigation involving an employee accident in its
manufacturing plant.
For each of the following scenarios, determine the appropriate way to report the situation.
Explain your reasoning and record any necessary entry.
1
The likelihood of a loss occurring is probable and the estimated loss is $650,000.
2
The likelihood of a loss occurring is probable and the loss is estimated to be in the range of
$500,000 to $800,000.
3
The likelihood of a loss occurring is reasonably possible and the estimated loss is $650,000.
4
The likelihood of a loss occurring is remote, while the estimated potential loss is $650,000.
163.
Rotary Tools sells power tools and backs each product it sells with a one-year warranty
against defects. Based on previous experience, the company expects warranty costs to be
approximately 5% of sales. By the end of the first year, sales are $800,000. Actual warranty
expenses incurred so far are $13,000.
1. Does this situation represent a contingent liability? Why or why not?
2. Record warranty expense and warranty liability for the year based on 5% of sales.
3. Record the actual warranty expenditures of $13,000 incurred so far.
4. What is the balance in the Warranty Liability account after the entries in parts 2 and 3?
164.
The Copper Grill has the following current assets: cash, $12 million; receivables, $50
million; inventory, $44 million; and other current assets $4 million. The Copper Grill has the
following liabilities: accounts payable, $38 million; current portion of long-term debt, $7
million; and long-term debt, $12 million. Based on these amounts, calculate the current
ratio and the acid-test ratio for The Copper Grill.
8-90
165.
Selected financial data regarding current assets and current liabilities for two competing
companies, Simon and Garfunkel, are provided as follows:
($ in millions)
Simon
Garfunkel
Current assets
Cash and cash
equivalents
$648
$2,917
Short-term investments
3,676
Net receivables
991
1,372
Inventory
515
202
Other current assets
334
476
Total current assets
$6,164
$4,967
Current liabilities
Accounts payable
$7,081
$4,295
Short-term debt
1,239
1,021
Other current liabilities
1,308
Total current liabilities
$8,320
$6,624
1. Calculate the current ratio for Simon. Then calculate the current ratio for Garfunkel.
Which of the two companies has the best current ratio?
2. Calculate the acid-test (quick) ratio for Simon. Then calculate the acid-test (quick)
ratio for Garfunkel. Which of the two companies has the best acid-test ratio?
Simon
$6,164
$8,320
=
(rounded)
8-92
166.
Listed below are several terms and phrases associated with current liabilities. Pair each
item from List A (by letter) with the item from List B that is most appropriately associated
with it.
List A
List B
_____
1. Long-term debt maturing within one
year.
a. FICA
_____
2. Borrowing from another company with
maturities up to 270 days.
b. Acid-test ratio
_____
3. Classifying liabilities as either current
or long-term helps investors and
creditors assess this.
c. Accrual accounting
_____
4. Cash, short-term investments, and
accounts receivable all divided by current
liabilities.
d. Recording a contingent liability
_____
5. Incurred on a notes payable.
e. Deferred revenues
_____
6. Interest expense is recorded in the
period interest is incurred rather than in
the period interest is paid.
f. The riskiness of a business’s obligations
_____
7. Loss is reasonably possible and
amount is reasonably estimable.
g. Current portion of long-term debt
_____
8. Loss is probable and amount is
reasonably estimable.
h. Disclosure of a contingent liability
_____
9. Gift cards.
i. Interest expense
_____
10. Social Security and Medicare.
j. Commercial paper
1. Long-term debt maturing within one
year.
a. FICA
2. Borrowing from another company
b. Acid-test ratio
8-94
167.
Aerospace Engineering borrows $40 million cash on November 1, 2018. Aerospace signs a
six-month, 6% promissory note to First National Bank under a prearranged short-term line
of credit. Interest on the note is payable at maturity. Each firm has a December 31 year
end.
Required:
1. Prepare the journal entries on November 1, 2018 to record (a) the notes payable for
Aerospace Engineering and (b) the notes receivable for First National Bank.
2. Record the adjusting entries on December 31, 2018 for (a) Aerospace Engineering and
(b) First National Bank.
3. Prepare the journal entries on April 30, 2019 to record payment of (a) the notes payable
for Aerospace Engineering and (b) the notes receivable for First National Bank.
8-95