Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-2A (25 minutes)
Part 1
Jan. 8 Office Salaries Expense……………………………………………………….…….……...22,760.00
Sales Salaries Expense…………………………………………………………………….…65,840.00
Part 2
Jan. 8 Payroll Taxes Expense………………………………………………………..….…….……10,853.50
FICA—Social Sec. Taxes Payable…………………………………………………. 5,493.20
Problem 11-3A (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
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Chapter 11 – Current Liabilities and Payroll Accounting
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
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Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-3A (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
Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-4A (40 minutes)
1.
2014
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
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
Merchandise Inventory…………….…….….…….…. 600
To record cost of razor warranty
replacements (30 x $20).
31 Warranty Expense…………………………….…….…….…. 1,320
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Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-4A (Concluded)
2015
Jan. 5 Cash………………………………………………………………… 11,250
Sales………………………………………………….…….… 11,250
Sold razors to customers.
5 Cost of Goods Sold……………………………………….…. 3,000
17 Estimated Warranty Liability…………………….…….… 1,000
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
4. Balance of the estimated liability as of December 31, 2014
Warranty expense for November…………..…….…….…….. $ 630 credit
Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-5A (60 minutes)
1. Miller Company
2. Weaver Company
= = 1.54
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
* 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
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
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Education.
Income before interest & taxes
$200,000
Income before interest & taxes
Interest expense
$400,000
$260,000
Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-5A (Continued)
6. Sales decrease by 10% (multiply prior sales by 0.9)
Miller Co. Weaver Co.
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
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
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
higher fixed cost strategy of Weaver Co. is indicated by a lower value of
the times interest earned ratio.
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Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-6AA (50 minutes)
Mar. 15 FICASocial Security Taxes Payable……………………………………………….… 3,472
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
31 Salaries Payable………………………………………………………………..….…….……. 21,858
31 Payroll Taxes Expense*………………………………………………………..….…….….. 2,786
FICASocial Sec. Taxes Payable……………………………………..…….…….. 1,736
FICAMedicare Taxes Payable………………………………………………….… 406
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Chapter 11 – Current Liabilities and Payroll Accounting
Problem 11-6AA (Concluded)
Apr. 15 FICASocial Security Taxes Payable……………………………………………..….. 3,472
15 State Unemployment Taxes Payable………………………………..….…….…….… 2,800
Cash……………………………………………………………………………………………. 2,800
To record payment of SUTA taxes [$2,240 + $560].
30 Federal Unemployment Taxes Payable…………………………………………….… 420
30 No entry required upon mailing Form 941.
PROBLEM SET B
Problem 11-1B (45 minutes)
Fox
Products
Spring
Bank
City
Bank
1. Maturity dates
2. Interest due at maturity
Principal of the note……………….……$4,600 $12,000 $8,000
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Chapter 11 – Current Liabilities and Payroll Accounting
3. Accrued interest on City Bank note at the end of 2014
4. Interest in 2015
Total interest for note……………………………………………….…….… $ 90
Fraction of term in 2015…………………………………….….…….……. 20/45
Interest expense in 2015…………………………………….…….…….… $ 40
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