Problem 9-2B (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Ahmed
Carlos
June
Marie
Total
Maximum base …………
$110,100
$110,100
$110,100
$110,100
Earned through 9/23 …
108,500
36,650
6,650
22,200
Amount subject to tax
$ 1,600
$ 73,450
$103,450
$ 87,900
Earned this week ………
$ 2,500
$ 1,515
$ 475
$ 1,000
Subject to tax ……………
$ 1,600
$ 1,515
$ 475
$ 1,000
Tax rate ……………………
6.20%
6.20%
6.20%
6.20%
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
Total
Earned this week ………
$ 2,500
$ 1,515
$ 475
Tax rate ……………………
1.45%
1.45%
1.45%
Medicare tax …………….
$ 36.25
$ 21.97
$ 6.89
$ 79.61
3. Employer’s FICA taxes for Social Security
Ahmed
Carlos
June
Total
Amount from part 1 …..
$ 99.20
$ 93.93
$ 29.45
$284.58
4. Employer’s FICA taxes for Medicare
Ahmed
Carlos
June
Total
Amount from part 2 …..
$ 36.25
$ 21.97
$ 6.89
$ 79.61
Financial & Managerial Accounting, 5th Edition
530
Problem 9-2B(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 ...
108,500
36,650
6,650
22,200
Amount subject to tax .
$ 0
$ 0
$ 350
$ 0
Earned this week ……..
$ 2,500
$ 1,515
$ 475
$ 1,000
Subject to tax …………..
$ 0
$ 0
$ 350
$ 0
Tax rate ……………………
0.8%
0.8%
0.8%
0.8%
FUTA tax ………………….
$ 0.00
$ 0.00
$ 2.80
$ 0.00
$ 2.80
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)
Withholding taxes ……..
(198.00)
(182.00)
(32.00)
(68.00)
(480.00)
Health insurance ……….
(25.00)
(25.00)
(25.00)
(25.00)
(100.00)
Take–home pay ………….
$2,141.55
$1,192.10
$381.66
$830.50
$4,545.81
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
2.80
0.00
2.80
SUTA tax …………………..
0.00
0.00
6.13
0.00
6.13
Health insurance ……….
25.00
25.00
25.00
25.00
100.00
Pension contrib. (5%) ..
125.00
75.75
23.75
50.00
274.50
Total payroll ………………
$2,785.45
$1,731.65
$569.02
$1,151.50
$6,237.62
Problem 9-3B (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
Employee Fed. Income Taxes Payable …..…….
8,625.00
Employee Med. Insurance Payable ………..…….
1,160.00
Employee Union Dues Payable ……………..…….
138.00
Salaries Payable ………………………………………….
42,716.50
To record payroll for period.
* $57,000 x 6.2% = $3,534.00
** $57,000 x 1.45% = $826.50
Part 2
Jan. 8
Payroll Taxes Expense ……………………………….…….
6,754.50
FICA—Social Security Taxes Payable ………….
3,534.00
FICA—Medicare Taxes Payable ……………..…….
826.50
State Unemployment Taxes Payable* …….…….
1,938.00
Federal Unemployment Taxes Payable** ….…….
456.00
To record employer payroll taxes.
* $57,000 x .034 = $1,938
**$57,000 x .008 = $456
Financial & Managerial Accounting, 5th Edition
532
Problem 9-4B (40 minutes)
1.
2013
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).
30
Warranty Expense ……………………………………………
250
Estimated Warranty Liability ……………………….
250
To record coffee grinder warranty expense
and liability at 10% of selling price.
Dec. 12
Estimated Warranty Liability …………………………….
144
Merchandise Inventory ……………………………….
144
To record cost of coffee grinder
warranty replacements (6 x $24).
18
Cash ………………………………………………………………..
10,000
Sales ………………………………………………………….
10,000
Sold coffee grinders to customers.
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).
31
Warranty Expense ……………………………………………
1,000
Estimated Warranty Liability ……………………….
1,000
To record coffee grinder warranty expense
and liability at 10% of selling price.
Problem 9-4B (Concluded)
2014
Jan. 7
Cash ………………………………………………………………..
2,000
Sales ………………………………………………………….
2,000
Sold coffee grinders to customers.
7
Cost of Goods Sold ………………………………………….
960
Merchandise Inventory ……………………………….
960
To record cost of January 7 sale (40 x $24).
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 2013 and December 2013
Sales
Percent
Warranty Expense
November …………………...
$ 2,500
10%
$ 250
December …………………….
10,000
10
1,000
Total …………………………..
$12,500
$1,250
3. Warranty expense for January 2014
Sales in January………………………..
$2,000
Warranty percent ……………………...
10%
Warranty expense ……………………...
$ 200
4. Balance of the estimated liability as of December 31, 2013
Warranty expense for November ……………………………..
$ 250
credit
Warranty expense for December……………………………...
1,000
credit
Cost of replacing items in December (23 x $24) ………..
(552)
debit
Estimated Warranty Liability balance ……………………….
$ 698
credit
5. Balance of the estimated liability as of January 31, 2014
Beginning balance …………………………………………………..
$ 698
credit
Warranty expense for January ………………………………...
200
credit
Cost of replacing items in January (36 x $24) …………..
(864)
debit
Estimated Warranty Liability balance ……………………….
$ 34
credit
Financial & Managerial Accounting, 5th Edition
534
Problem 9-5B (60 minutes)
1. Ellis Company
2. Seidel Company
3. Sales increase by 10% (multiply prior sales by 1.10)
Ellis Co.
Seidel Co.
Sales ………………………………….
$264,000
$264,000
Variable expenses ……………..
132,000
198,000
Income before interest ……….
132,000
66,000
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$ 42,000
$ 36,000
Net income increases by …….
40%
20%
4. Sales increase by 40% (multiply prior sales by 1.40)
Ellis Co.
Seidel Co.
Sales ………………………………….
$336,000
$336,000
Variable expenses ……………..
168,000
252,000
Income before interest ……….
168,000
84,000
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$ 78,000
$ 54,000
Net income increases by …….
160%
80%
5. Sales increase by 90% (multiply prior sales by 1.90)
Ellis Co.
Seidel Co.
Sales ………………………………….
$456,000
$456,000
Variable expenses ……………..
228,000
342,000
Income before interest ……….
228,000
114,000
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$138,000
$ 84,000
Net income increases by …….
360%
180%
Interest expense
Interest expense
$90,000
$30,000
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
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$ 6,000
$ 18,000
Net income decreases by ……
–80%
–40%
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
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$(30,000)
$ 0
Net income decreases by ……
–200%
–100%
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
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$(66,000)
$(18,000)
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
Employee Fed. Income Taxes Payable …………..….
1,050
Cash*……………………………………………………….
2,274
To record payment of FICA & federal income taxes.
*The advanced student would properly credit the “Payroll Cash” account.
30
Office Salaries Expense ………………………………..….
3,800
Shop Salaries Expense …………………………………….
4,200
FICA—Social Security Taxes Payable ………….
496
FICA—Medicare Taxes Payable ……………….….
116
Employee Fed. Income Taxes Payable ……..….
1,050
Salaries Payable ……………………………………..….
6,338
To record payroll period.
30
Salaries Payable …………………………………………..….
6,338
Cash*……………………………………………………….
6,338
To record payment of payroll.**
* The advanced student would properly credit the “Payroll Cash” account.
**Check numbers may be entered in the Payroll Register.
30
Payroll Taxes Expense* …………………………………….
612
FICA⎯Social Security Taxes Payable ………….
496
FICA⎯Medicare Taxes Payable ……………….….
116
To record employer payroll taxes.
*Amount earned through 5/31 = 5 x $1,600 = $8,000
Subject to SUTA/FUTA in June = $0
SUTA = $0
FUTA = $0
FICA⎯Social Security Taxes = $496 (same as employees)
FICA⎯Medicare Taxes = $116 (same as employees)
The advanced student would properly include the following entry:
30
Payroll Cash …………………………………………………….
8,612
Cash*……………………………………………………….
8,612
To record funds transfer for the March 31 payroll from Cash
to the Payroll Cash account. ($3,800+$4,200+$612)
Problem 9-6BA (Concluded)
July 15
FICA⎯Social Security Taxes Payable ……………….
992
FICA⎯Medicare Taxes Payable …………………….….
232
Employee Fed. Income Taxes Payable …………..….
1,050
Cash*……………………………………………………….
2,274
To record payment of FICA and
federal income taxes.
* The advanced student would properly credit the “Payroll Cash” account.
15
State Unemployment Taxes Payable ……………..….
440
Cash*……………………………………………………….
440
To record payment of SUTA taxes.
* The advanced student would properly credit the “Payroll Cash” account.
31
Federal Unemployment Taxes Payable ………….….
88
Cash*……………………………………………………….
88
To record payment of FUTA taxes.
* The advanced student would properly credit the “Payroll Cash” account.
31
No entry required upon mailing Form 941.
Serial Problem — SP 9
Serial Problem — SP 9, Success Systems (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
Total deductions ……………………………………………………….
235.50
Net Pay ……………………………………………………………………..
$ 764.50
*Employee has not reached the maximum limit.
2. 2014
Feb. 26
Wages Expense ……………………………………………….
1,000.00
FICA—Social Security Taxes Payable ………….
62.00
FICA—Medicare Taxes Payable ……………….….
14.50
Employee Federal Income Taxes Payable ..…..
159.00
Cash ……………………………………………………….
764.50
To record payroll period.
3. 2014
Feb. 26
Payroll Taxes Expense ………………………………….….
124.50
FICA—Social Sec. Taxes Payable …………….….
62.00
FICA—Medicare Taxes Payable ……………….….
14.50
State Unemployment Taxes Payable* ……….….
40.00
Federal Unemployment Taxes Payable** …….….
8.00
To record employer payroll taxes.
* $1,000 x .04 = $40.00
**$1,000 x .008 = $8.00
4. 2014
Mar. 25
Accounts Receivable – Wildcat Services ……….….
2,912
Sales ……………………………………………………….
2,800
Sales Taxes Payable ……………………………….….
112
Sold merchandise on credit and collected
sales tax of 4%.
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
Balance per books ………………………..…
$17,000
Plus interest earned…………………………
52
Less service charges ………………………
(15)
Balance before omitted check ……….…
17,037
Reconciled balance (from above) …………
(15,750)
Omitted check …………………………………
$ 1,287
b. Allowance for doubtful accounts
Unadjusted balance …………………………
$ 828
credit
Anticipated write-off ……………………..…
(679)
debit
Revised unadjusted balance ……………
149
credit
Desired ending balance ………………..…
700
credit
Necessary adjustment …………………..…
$ 551
credit
c. Depreciation expense on the truck
Cost ……………………………………………..………..
$32,000
Less salvage value ……………………….….
(8,000)
Depreciable cost …………………………..
$24,000
Useful life (years) …………………………..
4
Annual depreciation for 2013 ………..…………….
$ 6,000
d. Depreciation expense on the equipment
Sprayer
Injector
Cost ……………………………………………..…
$27,000
$18,000
Less salvage value ……………………….…
(3,000)
(2,500)
Depreciable cost …………………………..
$24,000
$15,500
Useful life (years) …………………………..
8
5
Depreciation for 2013 ………………………
$ 3,000
$ 3,100
Financial & Managerial Accounting, 5th Edition
540
Comprehensive Problem (Continued)
e. Adjusted revenue and unearned revenue balances
Total advance received ………………………………….
$ 3,840
Months in contract …………………………………………
12
Revenue per month ……………………………………….
$ 320
Months of services provided ………………………….
5
Total earned ($320 x 5 months) ………………………
(1,600)
Overstatement of revenue ($3,840 – $1,600) ……
$ 2,240
Extermination Services Revenue account
Unadjusted balance ……………………………………….
$60,000
Overstatement ……………………………………………….
(2,240)
Adjusted balance …………………………………………..
$57,760
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
Estimated warranty liability
Unadjusted balance ………………………………………
$ 1,400
credit
Warranty expense …………………………………………
1,444
credit
Ending adjusted balance ………………………………
$ 2,844
credit
g. Note payable and interest accrual
The note originated on December 31, 2013. The first time interest
Comprehensive Problem (Continued)
Part 2
BUG-OFF EXTERMINATORS
December 31, 2013
Unadjusted
Trial Balance
Adjustments .
Adjusted
Trial Balance
Cash ……………………………….……
$ 17,000
(a)
$1,250
$ 15,750
Accounts receivable ………..……
4,000
(b1)
679
3,321
Allowance for
doubtful accounts ………………
$ 828
(b1)
$ 679
(b2)
551
$ 700
Merchandise inventory …………
11,700
11,700
Trucks ……………………………..……
32,000
32,000
Accum. deprec.–Trucks …..……
0
(c)
6,000
6,000
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
Retained earnings …………………
49,700
49,700
Dividends ………………………..…
10,000
10,000
Extermination
services revenue …………..……
60,000
(e)
2,240
57,760
Interest revenue ……………………
872
(a)
52
924
Sales ………………………………..……
71,026
71,026
Cost of goods sold ………….……
46,300
46,300
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
Bad debts expense ………….……
0
(b2)
551
551
Miscellaneous expense …..……
1,226
(a)
15
1,241
Repairs expense ……………..……
8,000
8,000
Utilities expense ……………………
6,800
6,800
Warranty expense …………………
0
_______
(f)
1,444
______
1,444
_______
Totals ……………………………………
$226,026
$226,026
$18,316
$18,316
$238,207
$238,207