Exercise 8-7
Requirement 1
Total Salary Expense (100 x 40 hours x $20) $80,000
Less: Withholdings
Federal Income Taxes (80,000 x .15) 12,000
State Income Taxes (80,000 x .05) 4,000
FICA Taxes (80,000 x .0765) 6,120
Requirement 2
FICA Taxes (80,000 x .0765) $6,120
Requirement 3
The company does not make an accounting entry to record the free skiing given to
Exercise 8-8
Requirement 1
January 31
Salaries Expense 3,000,000
Income Tax Payable 637,500
FICA Tax Payable 229,500
Accounts Payable (to Blue Cross/Blue Shield) 30,000
Requirement 2
January 31
Salaries Expense (fringe benefits) 90,000
Requirement 3
January 31
Payroll Tax Expense 415,500
FICA Tax Payable 229,500
Exercise 8-9
January 31
Salaries Expense 600,000
Income Tax Payable 120,000
FICA Tax Payable ($600,000 x .0765) 45,900
January 31
Payroll Tax Expense (total) 83,100
FICA Tax Payable ($600,000 x .0765) 45,900
Exercise 8-10
Requirement 1
Cash 21,000,000
Requirement 2
Unearned Revenue 14,000,000
Requirement 3
The ending balance in Unearned Revenue is $7,000,000.
Unearned Revenue
14,000,000 21,000,000
Exercise 8-11
Requirement 1
January 31
Cash 32,400
Sales Revenue 30,000
Requirement 2
January 31
Cash 12,150
Sales Revenue 12,150
Sales Revenue 900
Exercise 8-12
Requirement 1
The contingent liability is probable and reasonably estimable, so it must be
reported.
Requirement 2
A $4 million loss should be reported in its 2015 income statement.
Requirement 3
A $4 million liability should be reported in its 2015 balance sheet.
Requirement 4
Loss 4,000,000
Exercise 8-13
Requirement 1
The contingent liability is probable and reasonably estimable, so it must be
recorded as follows:
Loss 1,300,000
Requirement 2
Pacific Cruise Lines should record a loss and a liability for the minimum amount
($1.1 million) and disclose the range between $1.1 and $1.6 million in the
footnotes to the financial statements. The journal entry is as follows:
Loss 1,100,000
Contingent Liability
Requirement 3
If the likelihood of loss is reasonably possible rather than probable, we record no
Requirement 4
If the likelihood of loss is remote, disclosure is usually not required.
Exercise 8-14
Requirement 1
Yes, it’s probable that costs for warranties will be incurred and based on previous
Requirement 2
Warranty Expense ($600,000 x 6%) 36,000
Requirement 3
Warranty Liability 23,000
Requirement 4
Warranty Liability
Payment 23,000 36,000 Expense
Exercise 8-15
Requirement 1
Yes, a contingent liability is an existing, uncertain situation that might result in a
Requirement 2
Dow would record a contingency if the loss is probable and can be reasonably
Requirement 3
Loss 381,000,000
Contingent Liability
Exercise 8-16
Requirement 1
Current Assets ÷ Current Liabilities = Current Ratio
Quick Assets ÷ Current Liabilities = Acid-Test Ratio
Requirement 2
Queen’s Line has a lower current ratio and a lower acid-test ratio than either United
Problems: Set a
Problem 8-1A
List A List B
_i__ 1. A promise to repay the amount borrowed plus
a. Recording of a
_d__ 2. Payment amount is reasonably possible and can
b. Unearned revenue
_h__ 3. Mixture of liabilities and equity a business
c. The riskiness of a
_a__ 4. Payment amount is probable and can be
d. Disclosure of a
_b__ 5. A liability that requires the sacrifice of
e. Interest on debt
_j__ 6. Long-term debt maturing within one year. f. Payroll taxes
_f__ 7. FICA and FUTA. g. Line of credit
_g__ 8. Informal agreement that permits a company to
h. Capital structure
_c__ 9. Classifying liabilities as either current or
i. Notes payable
_e__ 10. Amount of note payable x annual interest rate
j. Current portion of
Problem 8-2A
Requirement 1
(a). October 1, 2015
Cash 41,000,000
(b). October 1, 2015
Notes Receivable 41,000,000
Requirement 2
(a). December 31, 2015
Interest Expense ($41 million x 9% x 3/12) 922,500
(b). December 31, 2015
Interest Receivable 922,500
Requirement 3
(a) September 30, 2016
Notes Payable 41,000,000
Interest Expense ($41 million x 9% x 9/12) 2,767,500
Interest Payable ($41 million x 9% x 3/12) 922,500
(b). September 30, 2016
Cash 44,690,000
Interest Revenue ($41 million x 9% x 9/12) 2,767,500
Interest Receivable ($41 million x 9% x 3/12) 922,500
Problem 8-3A
Requirement 1
January 31
Salaries Expense 600,000
Income Tax Payable 60,000
FICA Tax Payable 45,900
Requirement 2
January 31
Salaries Expense (fringe benefits) 34,800
Accounts Payable (to Blue Cross) 10,800
Requirement 3
January 31
Payroll Tax Expense (total) 83,100
FICA Tax Payable 45,900
Problem 8-4A
Requirement 1
February 14
Salaries Expense 1,500,000
Income Tax Payable 375,000
FICA Tax Payable 114,750
Accounts Payable (Retirement Plan) 63,000
Requirement 2
February 14
Salaries Expense (fringe benefits) 100,500
Accounts Payable (Medical Insurance) 31,500
Accounts Payable (Life Insurance) 6,000
Requirement 3
February 14
Payroll Tax Expense (total) 207,750
FICA Tax Payable 114,750
Problem 8-5A
Requirement 1
$102,600,000 = $900 per season ticket
$900 = $150 per individual game ticket
Requirement 2
Cash 102,600,000
Requirement 3
Unearned Revenue 17,100,000