Problem 9-5B (60 minutes)
1. Ellis Company
2. Seidel Company
Income before interest & taxes
Interest expense
$120,000
$90,000
Problem 9-5B (Concluded)
6. Sales decrease by 20% (multiply prior sales by 0.80)
Ellis Co. Seidel Co.
Sales……………..……….…….…... $192,000 $192,000
Variable expenses………......... 96,000 144,000
Income before interest…..…... 96,000 48,000
7. Sales decrease by 50% (multiply prior sales by 0.50)
Ellis Co. Seidel Co.
Sales……………..……….…….…... $120,000 $120,000
Variable expenses………......... 60,000 90,000
Income before interest…..…... 60,000 30,000
8. Sales decrease by 80% (multiply prior sales by 0.20)
Ellis Co. Seidel Co.
Sales……………..……….…….…... $ 48,000 $ 48,000
Variable expenses………......... 24,000 36,000
Income before interest…..…... 24,000 12,000
Net income decreases by...... -320% -160%
9. The higher fixed cost strategy (having more fixed interest expense) of
Ellis 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 9-6BA (50 minutes)
June 15 FICA—Social Security Taxes Payable…..….….……. 992
FICA—Medicare Taxes Payable…….…….….….….…. 232
To record payment of FICA & federal income taxes.
30 Office Salaries Expense……….……………….………….. 3,800
Shop Salaries Expense…………………………………..… 4,200
FICA—Social Security Taxes Payable.….….….. 496
FICA—Medicare Taxes Payable..….…….….….… 116
To record payroll for the period.
30 Salaries Payable…………………………..………….…….… 6,338
Cash……..…………………..…………….…………………. 6,338
*Check numbers are likely entered in the Payroll Register.
30 Payroll Taxes Expense*………..…………………………... 612
FICASocial Security Taxes Payable…………... 496
FICAMedicare Taxes Payable………….…….….. 116
Problem 9-6BA (Concluded)
July 15 FICASocial Security Taxes Payable………………… 992
FICAMedicare Taxes Payable……….………….….…. 232
Employee Fed. Income Taxes Payable…………….… 1,050
15 State Unemployment Taxes Payable…….….….….… 440
Cash……..…………………..…………….…………………. 440
To record payment of SUTA taxes.
31 Federal Unemployment Taxes Payable…….….….… 66
Cash……..…………………..…………….…………………. 66
To record payment of FUTA taxes.
Serial Problem — SP 9
Serial Problem — SP 9, Business Solutions (30 minutes)
1.
Gross pay (8 days x $125 per day)………………….….……... $1,000.00
FICA Social Security tax deduction (6.2%)*..……............. $ 62.00
FICA Medicare tax deduction (1.45%)…………….….….….… 14.50
Income tax deduction……………………………….….…….….….. 159.00
2. 2016
Feb. 26 Wages Expense……………………………….….….…….….1,000.00
FICA—Social Security Taxes Payable…..….….. 62.00
FICA—Medicare Taxes Payable….….…….….….. 14.50
3. 2016
Feb. 26 Payroll Taxes Expense…………………….………………..122.50
FICA—Social Sec. Taxes Payable……………..…. 62.00
FICA—Medicare Taxes Payable….….…….….….. 14.50
State Unemployment Taxes Payable*…………… 40.00
4. 2016
Mar. 25 Accounts Receivable – Wildcat Services.............. 2,912
Mar. 25 Cost of Goods Sold………………….…………………..….. 2,002
Merchandise Inventory……………….….….….….… 2,002
To record cost of March 25 sale.
Comprehensive Problem
Bug-Off Exterminators (100 minutes)
Part 1
a. Correct ending balance of cash and the amount of the omitted check
Balance per bank………..….….…….….….$15,100
Plus deposit in transit…..….……........... 2,450
Less outstanding checks…….….….…... (1,800)
Reconciled balance…..…….….….……....$15,750
Omitted check…………….….…….….….….$ 1,287
b. Allowance for doubtful accounts
Unadjusted balance……………….….….… $ 828 credit
Necessary adjustment…………….….…... $ 551 credit
c. Depreciation expense on the truck
Cost…………………………………………………..….…….$32,000
Less salvage value…………..……….….….….….….. (8,000)
d. Depreciation expense on the equipment
Sprayer Injector
Cost………………………………..….……..…... $27,000 $18,000
Less salvage value…..….…….….……..... (3,000) (2,500)
Depreciation for 2015…..….…….…........ $ 3,000 $ 3,100
Comprehensive Problem (Continued)
e. Adjusted revenue and unearned revenue balances
Total advance received…………..…………….….……. $ 3,840
Months in contract…….……………….….…..….……... 12
Revenue per month………………………………….….… $ 320
Unearned Services Revenue account
Unadjusted balance………………..…….….…..…….… $ 0
Adjustment…………..………………………………….….... 2,240
Adjusted balance………..…………………………………. $ 2,240
f. Warranty expense
Adjusted services revenue for the year (from e).... $57,760
Warranty percent………………………..……………..…. 2.5%
Warranty expense (estimated)…………….……..…. $ 1,444
g. Note payable and interest accrual
The note originated on December 31, 2015. The first time interest
Comprehensive Problem (Continued)
Part 2
BUG-OFF EXTERMINATORS
December 31, 2015
Unadjusted
Trial Balance Adjustments .
Adjusted
Trial Balance
Cash ………………………………. $
17,000
(a) $1,250 $ 15,750
Equipment…………………….….
45,000 45,000
Accum. deprec.–Equip.......... 12,200 (d) 6,100 18,300
Accounts payable…..……….... 5,000 (a) 1,287 3,713
Estim. warranty liability…....... 1,400 (f) 1,444 2,844
Unearned services rev........... 0(e) 2,240 2,240
Interest payable…...…........... 0 0
Long-term notes
payable..………………………….
15,000 15,000
Common stock…………..…..... 10,000 10,000
Deprec. expense–Trucks....... 0(c) 6,000 6,000
Deprec. expense–Equip......... 0(d) 6,100 6,100
Wages expense…………………
35,000 35,000
Interest expense…..…......…... 0 0
Rent expense…………………... 9,000 9,000
Comprehensive Problem (Continued)
Part 3
2015
(a) Miscellaneous Expenses…………….……….….….…….… 15
Accounts Payable…………….……………….………………… 1,287
Interest Revenue………..………………………………….. 52
Cash………………………………………..…………..….……. 1,250
Adjust cash account. (Separate entries are acceptable.)
(d) Depreciation Expense—Equipment……………….….….. 6,100
Accumulated Depreciation—Equipment.............. 6,100
Depreciation on equipment.
(e) Extermination Services Revenue………………..….…….. 2,240
Unearned Services Revenue…..….….……..…….….. 2,240
Adjust for unearned revenues.