Exercise 9-18 (25 minutes)
(in SEK millions)
1. Warranty Expense……………..……………….….…..….… 7,706
2. Estimated Warranty Liability…………..…..….….….…. 6,677
3. Volvo would report warranty expense of SEK 7,706 million for 2013.
PROBLEM SET A
Problem 9-1A (45 minutes)
Locust Natl. Bank Fargo
1. Maturity dates
Date of the note………….….….….…..May 19 July 8 Nov. 28
Term of the note (in days)….......... 90 120 60
Maturity date…………..…………….…..Aug. 17 Nov. 5 Jan. 27
2. Interest due at maturity
Principal of the note…………………..$35,000 $80,000 $42,000
Annual interest rate…..….….…....... 10% 9% 8%
Interest expense…………..…….….….$ 875 $ 2,400 $ 560
3. Accrued interest on Fargo note at the end of 2014
Total interest for note……….……….….…..….….….….….… $ 560
………………………………………………..…….….….….….….…... $ 308
4. Interest on Fargo note in 2015
Total interest for note……….……….….…..….….….….….… $ 560
Problem 9-1A (Concluded)
5.
2014
Apr. 20 Merchandise Inventory…………………….….….….….... 40,250
Accounts Payable—Locust…………….….…..…... 40,250
Purchased merchandise on credit.
May 19 Accounts Payable—Locust………………….….….….… 40,250
Cash…………………………………….…………………..… 5,250
Notes Payable—Locust………..….….….…..….….. 35,000
Paid $5,250 cash and gave a 90-day,
10% note to extend due date on account.
28 Cash……………..……………………………..……………….…. 42,000
Notes Payable—Fargo Bank……….….….…..…... 42,000
Borrowed cash with 60-day, 8% note.
Dec. 31 Interest Expense…………………………………………...…. 308
Interest Payable…………….……………………….…... 308
Accrued interest on note payable.
2015
Problem 9-2A (25 minutes)
Part 1
Jan. 8 Office Salaries Expense…………………………………….22,760.00
Sales Salaries Expense………………….….…..….….….65,840.00
FICA—Social Sec. Taxes Payable*….…............ 5,493.20
FICA—Medicare Taxes Payable**…..…............. 1,284.70
Employee Fed. Inc. Taxes Payable…..….…....... 12,860.00
Part 2
Jan. 8 Payroll Taxes Expense………………..…………………….10,853.50
FICA—Social Sec. Taxes Payable………………… 5,493.20
FICA—Medicare Taxes Payable…..….….….….... 1,284.70
State Unemployment Taxes Payable*…………... 3,544.00
Problem 9-3A (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Dahlia Trey Kiesha Chee Total
Maximum base……….….. $117,000 $117,000 $117,000 $117,000
Earned through 8/18...... 115,900 116,100 7,100 1,050
Yet under maximum...... $ 1,100 $ 900 $109,900 $115,950
Earned this week…........ $ 2,000 $ 900 $ 450 $ 400
2. Each employee’s FICA withholdings for Medicare (no limits)
Dahlia Trey Kiesha Chee Total
Earned this week………. $ 2,000 $ 900 $ 450 $ 400
3. Employer’s FICA taxes for Social Security
Dahlia Trey Kiesha Chee Total
Amount from part 1…… $ 68.20 $ 55.80 $ 27.90 $ 24.80 $176.70
4. Employer’s FICA taxes for Medicare
Dahlia Trey Kiesha Chee Total
Amount from part 2…… $ 29.00 $ 13.05 $ 6.53 $ 5.80 $ 54.38
Problem 9-3A (Concluded)
5. Employer’s FUTA taxes
Dahlia Trey Kiesha Chee Total
Maximum base….............. $ 7,000 $ 7,000 $ 7,000 $ 7,000
Earned through 8/18........ 115,900 116,100 7,100 1,050
Yet under maximum......... 0 0 0 5,950
6. Employer’s SUTA taxes
Dahlia Trey Kiesha Chee Total
Subject to tax (from 5).... $ 0 $ 0 $ 0 $ 400
Tax rate…..….….….…........ 2.15% 2.15% 2.15% 2.15%
SUTA tax….….….….…....... $ 0.00 $ 0.00 $ 0.00
$ 8.60
10.60
$ 8.60
7. Each employee’s net (take-home) pay
Dahlia Trey Kiesha Chee Total
Gross earnings………….. $2,000.00 $ 900.00 $450.00 $400.00 $3,750.00
Less
FICA Social Sec. tax...... (68.20) (55.80) (27.90) (24.80) (176.70)
FICA Medicare taxes..... (29.00) (13.05) (6.53) (5.80) (54.38)
Take-home pay.….…...... $1,588.80
$ 656.15
$346.57
$309.40
$2,900.92
8. Employer’s total payroll-related expense for each employee
Dahlia Trey Kiesha Chee Total
Gross earnings…............ $2,000.00 $ 900.00 $450.00 $400.00 $3,750.00
Plus
FICA Social Sec. tax....... 68.20 55.80 27.90 24.80 176.70
FICA Medicare taxes....... 29.00 13.05 6.53 5.80 54.38
FUTA tax………………….…. 0.00 0.00 0.00 2.40 2.40
Problem 9-4A (40 minutes)
1.
2014
Nov. 11 Cash…………………………………………………………….….. 7,875
Sales……….…………………………….….….….…..….… 7,875
Sold razors to customers.
11 Cost of Goods Sold…………………………………….….... 2,100
Merchandise Inventory……..…….….….…..….…... 2,100
To record cost of November 11 sale (105 x $20).
30 Warranty Expense…………………………..….….….…..… 630
Estimated Warranty Liability…………..…..….…... 630
To record razor warranty expense
replacements (15 x $20).
16 Cash…………………………………………..……………………. 16,500
Sales……….…………………………….….….….…..….… 16,500
Sold razors to customers.
16 Cost of Goods Sold…………………………………….….... 4,400
Merchandise Inventory……..…….….….…..….…... 4,400
To record cost of December 16 sale (220 x $20).
29 Estimated Warranty Liability…………..….….…..….…. 600
31 Warranty Expense…………………………..….….….…..… 1,320
Financial and Managerial Accounting, 6th Edition
530
Problem 9-4A (Concluded)
2015
Jan. 5 Cash………………….……………………………..………….….. 11,250
Sales……….…………………………….….….….…..….… 11,250
Sold razors to customers.
31 Warranty Expense…………………………..….….….…..… 900
Estimated Warranty Liability…………..…..….…... 900
To record razor warranty expense
and liability at 8% of selling price.
2. Warranty expense for November 2014 and December 2014
Sales Percent Warranty Expense
3. Warranty expense for January 2015
Sales in January…………………..……..$11,250
Warranty percent……………….……….. 8%
Warranty expense…….….….…..….….$ 900
4. Balance of the estimated liability as of December 31, 2014
Warranty expense for November…………….….….….….…. $ 630 credit
Problem 9-5A (60 minutes)
1. Miller Company
2. Weaver Company
3. Sales increase by 30% (multiply prior sales by 1.3)
Miller Co. Weaver Co.
Sales……………..……………….….….. $1,300,000 $1,300,000
Variable expenses…………..….….. 1,040,000 780,000
Income before interest……………. 260,000 520,000
* Computed as the increase in net income divided by prior net income.
4. Sales increase by 50% (multiply prior sales by 1.5)
Miller Co. Weaver Co.
Sales……………..……………….….….. $1,500,000 $1,500,000
Variable expenses…………..….….. 1,200,000 900,000
Income before interest……………. 300,000 600,000
5. Sales increase by 80% (multiply prior sales by 1.8)
Miller Co. Weaver Co.
Sales……………..……………….….….. $1,800,000 $1,800,000
Variable expenses…………..….….. 1,440,000 1,080,000
Income before interest……………. 360,000 720,000
Income before interest & taxes
Income before interest & taxes
$200,000
$400,000
$260,000