Chapter 9: Current Liabilities and Contingencies
92. Baynard Boats, Inc. presented the following information for the year ending 2016.
Baynard Boats, Inc.
Balance Sheet
December 31, 2016
Cash
$ 55,000
Accounts Payable
$175,000
Marketable Securities
105,000
Mortgage Payable
140,000
Account Receivable
175,000
Notes Payable
165,000
Inventory
250,000
Common Stock
160,000
Plant Assets, net
220,000
Retained Earnings
165,000
$805,000
$805,000
1) Compute the Quick Ratio/Acid Test Ratio
2) Compute the Current Ratio
=
1.9143
=
3.34286
1
Moderate
ACCT.WHAL.16.9.2 – LO: 9.2
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Chapter 9: Current Liabilities and Contingencies
93. Vanity Dog Products had the following account balances.
2015
2016
Cash
$ 76,000
$ 89,000
Marketable Securities
135,000
98,000
Account Receivables
67,800
99,500
Inventory
45,000
25,000
Plant Assets
145,000
155,000
Accounts Payable
145,600
199,500
Notes Payable, Short Term
25,000
45,000
Notes Payable, Long Term
100,000
55,000
Mortgage Payable
145,000
145,000
Common Stock
1,000,000
1,000,000
Retained Earnings
$ 265,000
$ 297,500
Required:
Compute the following:
1)
The 2015 Quick Ratio
2)
The 2015 Current Ratio
3)
The 2016 Quick Ratio
4)
The 2016 Current Ratio
5)
What was net income for 2016, assuming no dividends were
paid?
6)
Did the quick ratio improve for 2016 over 2015 or did it
degrade?
1)
$ 76,000
+
$135,000
+
$ 67,800
=
$278,800
=
1.6342321
$170,600
$170,600
2)
$ 76,000
+
$135,000
+
$ 67,800
+
$ 45,000
=
$323,800
=
1.898007
$145,600
+
$ 25,000
$170,600
3)
$ 89,000
+
$ 98,000
+
$ 99,500
=
$286,500
=
1.1717791
$244,500
$244,500
4)
$ 89,000
+
$ 98,000
+
$ 99,500
+
$ 25,000
=
$311,500
=
1.274029
$199,500
+
$ 45,000
$244,500
6) Both the current and quick ratio appear to show a degradation. This is
concerning to any new investor.
94. On July 1, 2016 Trolley & Train World borrowed money from their bank First Friendly National Bank by issuing a
$25,000, 90 day, non-interest bearing note. The note was discounted to 14%.
Compute the following:
1) How much money did Trolley and Train World receive?
2) What was the total amount of interest paid?
3) What is the effective 90 day interest rate on this note (round to 4 decimals)?
4) What is the approximate annual effective interest rate on this note payable?
Chapter 9: Current Liabilities and Contingencies
95. On March 1, 2016 Giant Jumbo Clown Costumes borrowed money from their bank Second Friendly National Bank by
issuing a $125,000, 180 day, non-interest bearing note. The note was discounted to 13.5%.
Compute the following:
1) How much money did Giant Jumbo receive?
2) What was the total amount of interest paid?
3) What is the effective 180 day interest rate on this note payable? (Round to 4 decimals)
4) What is the approximate annual effective interest rate on this note payable?
5) Record the journal entry(ies)for the issuance of the note.
Chapter 9: Current Liabilities and Contingencies
96. Radar Company is located in a town that assesses property for tax purposes on July 1 for the period July 1 to June 30.
The tax rate is not determined until October 10, and the tax bills are mailed October 20 with payment due by
December 31. For the prior fiscal year, the Radar Company paid $18,000. The tax bill for the current fiscal year (July
1, 2016-June 30, 2017) is received on October 23, and property taxes have increased to $18,900. The company pays
this amount on October 29.
Required:
a.
Record the monthly property tax accrual recorded in July of 2014.
b.
Record the payment of the taxes on October 29.
c.
Record the monthly adjusting entry on October 31.
Chapter 9: Current Liabilities and Contingencies
97. On January 1, 2015, Peg, Inc. bought some equipment by signing a non-interest-bearing note for $160,000. The note is
to be paid in four equal annual $40,000 payments, beginning on December 31, 2015. Current interest rates were 8%.
The present value and future value information for 8%, 4 periods follows:
Future value of 1
1.360
Present value of 1
0.735
Future value of an ordinary annuity of 1
4.506
Present value of an ordinary annuity of 1
3.312
1/1/2015
Equipment ($40,000 ´ 3.312)
Note Payable
12/31/2015
Note Payable
Cash
Interest Expense
Discount on Note Payable ($132,480 ´ .08)
Required:
Prepare the journal entries necessary on January 1, 2015, and December 31, 2015.
Chapter 9: Current Liabilities and Contingencies
98. JST Services employs 50 workers who are each paid $900 per week. JST allows each employee two weeks of paid
vacation per year. In addition, the company allows each employee one week of paid sick leave per year. No
employees used vacation days or sick leave in the first quarter. In April, a total of three weeks of vacation and one
week of sick leave were used by various employees.
Required:
a.
Prepare the journal entry to record JST’s quarterly liability for compensated absences on
March 31. (Ignore payroll taxes.)
b.
1
ACCT.WHAL.16.9.4 – LO: 9.4
Prepare the April 30 journal entry to record the payment of four weeks of payroll, which
includes the employee use of compensated absences. (Ignore payroll taxes.)
99. Claymont Company instituted a vacation and sick pay policy on January 1, 2014. Thirty employees, whose salaries
averaged $100 per day, were covered under the plan. The policy allows each employee five days of sick pay and
twelve days of vacation pay per year. The sick pay accumulates up to a ten-day maximum. Vacation pay accumulates
without a maximum. The sick pay vests, but vacation pay does not. A total of 400 days of sick and vacation days
were taken during 2015.
Required:
Prepare the December 31, 2015 year-end accrual for compensated absences.
Chapter 9: Current Liabilities and Contingencies
100. Marble Co. employs a staff of 35 at a total monthly gross pay of $75,000. The company withholds federal income tax
at 20% and state income tax at 3% for all employees. In addition, the following tax rates apply: FICA tax, 7.65%;
federal unemployment tax, 0.8%; state unemployment tax, 2.7%.
Required:
a.
Prepare the journal entry to record salaries and employee withholding items for the month
of January. (Round numbers up to the next whole dollar.)
b.
Salaries Expense
Employee Federal Income Taxes Withholding Payable
Employee State Income Taxes Withholding Payable
FICA Taxes Payable
Federal Unemployment Taxes Payable
Prepare the journal entry to record employer payroll taxes for the month of January.
Chapter 9: Current Liabilities and Contingencies
101. The sales manager of the Walbrook Company receives an annual bonus of 10% of net income after bonus and taxes.
In 2015, Walbrook’s income, before bonus and taxes, was $400,000. The effective tax rate is 30%.
Required:
a.
Compute the sales manager’s bonus and the income tax expense for the Walbrook
Company.
b.
Taxes
= $120,000 − .3B
1.07B
Why does Walbrook compute the sales manager bonus after taxes and the bonus?
Chapter 9: Current Liabilities and Contingencies
102. Mason Company makes sales on which an 6% sales tax is assessed. The following summary transactions were made
during 2015:
a.
Cash sales of $900,000, excluding sales taxes.
b.
Credit sales of $2,150,000, including sales taxes.
c.
Sales taxes of $213,500 were paid to the state.
Required:
Prepare journal entries to record the preceding transactions. (Round to the nearest whole number.)
Chapter 9: Current Liabilities and Contingencies
103. Mr. Luigi, the plant supervisor of Super Brothers Corp. is allowed a bonus of 4% of income after bonus and tax. For
2015, the tax rate is 30% and income before bonus and tax amounts to $1,200,000.
Required:
Compute the amount of Mr. Luigi’s 2015 bonus.
Chapter 9: Current Liabilities and Contingencies
104. Natural Hair reports the following payroll information for May, 2015:
Type of
Gross
Federal Income
Savings Bonds
Salary
Pay
Tax Withheld
Withheld
Sales
$10,000
$2,200
$200
Office
3,000
600
300
$13,000
$2,800
$500
Tax rate information follows:
FICA
7.0%
Federal unemployment
0.8%
State employment
5.4%
1
Challenging
ACCT.WHAL.16.9.4 – LO: 9.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Assume that all wages are subject to all payroll taxes.
Required:
Prepare the journal entries to record the payment of the May, 2015, payroll and to record the payroll taxes imposed
on the employer.
Chapter 9: Current Liabilities and Contingencies
105. Sun Shack Snack Corp. sells Trail mix for $7.50 a box. By including a coupon for a pedometer, the company hopes
to increase sales. If customers redeem the coupon, they can obtain a pedometer for $3.00. The pedometers will cost
Sun Shack $8.00 each. Sun Shack estimates that the promotion will be popular; they expect 3,000,000 boxes of trail
mix to be sold in 2015 and 10% of the coupons to be redeemed during the promotional period. Of the total coupons
expected to be redeemed, 70% of the coupons will be redeemed in 2016.
Required:
a.
Prepare journal entries in support of this year’s (2015) transactions for the following:
i. Sales (all cash)
ii. Purchase of pedometers inventory (for cash)
iii. Current year redemptions
iv. Liability accrual at end of 2015
b.
What is the rationale for the entries recorded?
Cash
Sales*
Estimated redemption:
Promotion Inventory*
Cash
Cost of pedometers
Payment with redemption
Estimated promotion liability
Cash
Premium Expense
Promotion Inventory
Premium Expense
Estimated Premium Liability*
(1)
Chapter 9: Current Liabilities and Contingencies
106. Excellence, Inc., places a coupon in each box of its product. Customers may send in ten coupons and $2.50, and the
company will send them a CD. Sufficient CDs were purchased at $6 a piece to meet the expected demand. A certain
number of boxes of product were sold in 2016. It was estimated that a total of 5% of the coupons will be redeemed.
In 2016, 18,000 coupons were redeemed. Mailing costs were $0.75 per CD. At December 31, 2016, the following
adjusting entry was made to record the estimated liability for premium outstanding:
Premium Expense
25,500
Estimated Premium Claims Outstanding
25,500
Required:
Compute the number of boxes of product sold by Excellence in 2016.