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Problem 9-5A (Continued)
6. Sales decrease by 10% (multiply prior sales by 0.9)
Miller Co. Weaver Co.
Sales........................................ $900,000 $900,000
Variable expenses.................. 720,000 540,000
Income before interest........... 180,000 360,000
7. Sales decrease by 20% (multiply prior sales by 0.8)
Miller Co. Weaver Co.
Sales........................................ $800,000 $800,000
Variable expenses.................. 640,000 480,000
Income before interest........... 160,000 320,000
Net income decreases by...... -29% -57%
8. Sales decrease by 40% (multiply prior sales by 0.6)
Miller Co. Weaver Co.
Sales........................................ $600,000 $600,000
Variable expenses.................. 480,000 360,000
Income before interest........... 120,000 240,000
9. The higher fixed cost strategy (having more fixed interest expense) of
Weaver Co. accentuates the effects of increases and decreases in sales.
That is, increases in sales produce greater increases in net income and
decreases in sales produce greater decreases in net income. The
Problem 9-6AA (50 minutes)
Mar. 15 FICASocial Security Taxes Payable.....................3,472
FICAMedicare Taxes Payable............................... 812
To record payment of FICA & federal income taxes.
31 Office Salaries Expense...........................................11,200
Shop Salaries Expense............................................16,800
FICASocial Sec. Taxes Payable..................... 1,736
FICAMedicare Taxes Payable......................... 406
31 Salaries Payable.......................................................21,858
Cash..................................................................... 21,858
To record payment of payroll.*
*Check numbers are likely entered in the Payroll Register.
31 Payroll Taxes Expense*............................................2,786
FICASocial Sec. Taxes Payable..................... 1,736
FICAMedicare Taxes Payable......................... 406
Problem 9-6AA (Concluded)
Apr. 15 FICASocial Security Taxes Payable.....................3,472
FICAMedicare Taxes Payable............................... 812
15 State Unemployment Taxes Payable......................2,800
Cash..................................................................... 2,800
30 Federal Unemployment Taxes Payable.................. 420
Cash..................................................................... 420
30 No entry required upon mailing Form 941.
PROBLEM SET B
Problem 9-1B (45 minutes)
Fox
Products
Spring
Bank
City
Bank
1. Maturity dates
Date of the note................................May 23 July 15 Dec. 6
Term of the note (in days)................ 60 120 45
Maturity date.....................................July 22 Nov. 12 Jan. 20
2. Interest due at maturity
Principal of the note.........................$4,600 $12,000 $8,000
Annual interest rate.......................... 15% 10% 9%
Interest expense...............................$ 115 $ 400 $ 90
3. Accrued interest on City Bank note at the end of 2014
Total interest for note................................................................. $ 90
Fraction of term in 2014............................................................. 25/45
4. Interest in 2015
Total interest for note................................................................. $ 90
Problem 9-1B (Concluded)
5.
2014
May 23 Accounts PayableFox Products.......................... 5,000
Cash..................................................................... 400
Notes PayableFox Products........................... 4,600
Paid $400 cash and gave a 60-day,
15% note to extend due date on account.
July 15 Cash........................................................................... 12,000
Notes PayableSpring Bank............................. 12,000
Borrowed cash with a 120-day, 10% note.
31 Interest Expense....................................................... 50
Interest Payable.................................................. 50
Accrued interest on note payable.
2015
Jan. 20 Interest Expense....................................................... 40
Interest Payable........................................................ 50
Problem 9-2B (25 minutes)
Part 1
Jan.
8
Sales Salaries Expense...........................................34,745.00
Office Salaries Expense...........................................21,225.00
Delivery Salaries Expense.......................................1,030.00
FICA—Social Security Taxes Payable*............. 3,534.00
FICA—Medicare Taxes Payable**..................... 826.50
** $57,000 x 1.45% = $826.50
Part 2
Jan.
8
Payroll Taxes Expense.............................................6,640.50
FICA—Social Security Taxes Payable.............. 3,534.00
FICA—Medicare Taxes Payable........................ 826.50
Problem 9-3B (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Ahmed Carlos June Marie Total
Maximum base................$117,000 $
117,000
$117,000 $
117,000
Earned through 9/23....... 115,400 115,485 6,650 22,200
Yet under maximum........$ 1,600 $ 1,515 $110,350 $ 94,800
Social Security tax..........$ 99.20 $ 93.93 $ 29.45 $ 62.00 $284.58
2. Each employee’s FICA withholdings for Medicare (no limits)
Ahmed Carlos June Marie Total
Earned this week............. $ 2,500 $ 1,515 $ 475 $ 1,000
3. Employer’s FICA taxes for Social Security
Ahmed Carlos June Marie Total
Amount from part 1......... $ 99.20 $ 93.93 $ 29.45 $ 62.00 $284.58
4. Employer’s FICA taxes for Medicare
Ahmed Carlos June Marie Total
Amount from part 2......... $ 36.25 $ 21.97 $ 6.89 $ 14.50 $ 79.61
Problem 9-3B (Concluded)
5. Employer’s FUTA taxes
Ahmed Carlos June Marie Total
Maximum base............ $ 7,000 $ 7,000 $ 7,000 $ 7,000
Earned through 9/23... 115,400 115,485 6,650 22,200
Yet under maximum..... $ 0 $ 0 $ 350 $ 0
Earned this week........ $ 2,500 $ 1,515 $ 475 $ 1,000
6. Employer’s SUTA taxes
Ahmed Carlos June Marie Total
Subject to tax (from 5). $ 0 $ 0 $ 350 $ 0
Tax rate........................ 1.75% 1.75% 1.75% 1.75%
SUTA tax...................... $ 0.00 $ 0.00 $ 6.13 $ 0.00 $ 6.13
7. Each employee’s net (take-home pay)
Ahmed Carlos June Marie Total
Gross earnings............ $2,500.00 $1,515.00 $475.00 $1,000.00 $5,490.00
Less
FICA Social Sec. tax.... (99.20) (93.93) (29.45) (62.00) (284.58)
FICA Medicare taxes.... (36.25) (21.97) (6.89) (14.50) (79.61)
8. Employer’s total payroll-related expense for each employee
Ahmed Carlos June Marie Total
Gross earnings............ $2,500.00 $1,515.00 $475.00 $1,000.00 $5,490.00
Plus
FICA Social Sec. tax.... 99.20 93.93 29.45 62.00 284.58
FICA Medicare taxes.... 36.25 21.97 6.89 14.50 79.61
FUTA tax....................... 0.00 0.00 2.10 0.00 2.10
Problem 9-4B (40 minutes)
1.
2015
Nov. 16 Cash........................................................................... 2,500
Sales.................................................................... 2,500
Sold coffee grinders to customers.
16 Cost of Goods Sold.................................................. 1,200
Merchandise Inventory...................................... 1,200
To record cost of November 16 sale (50 x $24).
18 Cost of Goods Sold.................................................. 4,800
Merchandise Inventory...................................... 4,800
To record cost of December 18 sale (200 x $24).
28 Estimated Warranty Liability................................... 408
Merchandise Inventory...................................... 408
To record cost of coffee grinder
warranty replacements (17 x $24).
Problem 9-4B (Concluded)
2016
21 Estimated Warranty Liability................................... 864
Merchandise Inventory...................................... 864
To record cost of coffee grinder
warranty replacements (36 x $24).
31 Warranty Expense.................................................... 200
Estimated Warranty Liability............................. 200
To record coffee grinder warranty expense
and liability at 10% of selling price.
2. Warranty expense for November 2015 and December 2015
Sales Percent Warranty Expense
November......................... $ 2,500 10% $ 250
3. Warranty expense for January 2016
Sales in January............................. $2,000
Warranty percent............................ 10%
Warranty expense........................... $ 200
4. Balance of the estimated liability as of December 31, 2015
Warranty expense for November.................................... $ 250 credit
Warranty expense for December.................................... 1,000 credit
5. Balance of the estimated liability as of January 31, 2016
Beginning balance............................................................ $ 698 credit
Warranty expense for January........................................ 200 credit
