978-0078025754 Chapter 9 Solution Manual Part 1

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subject Authors John Wild

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Chapter 9
Accounting for Current Liabilities
QUESTIONS
1. A current liability is expected to be paid within one year or the company’s operating
cycle, whichever is longer. Any liability that is not current is considered to be long
term.
5. The combined Social Security tax rate (assuming the maximum wage amount is not
6. The Medicare tax rate is 1.45%. This rate is applied to all wages earned by an
employeeno maximum limit exists.
7. The employee is responsible for federal income taxes, state income taxes, local
8. An employee’s gross earnings along with the number of withholding allowances that
9. An unemployment merit rating is based on an evaluation of an employer’s
experience in creating or avoiding unemployment with its employees. The merit
10. The obligation to correct or replace defective products (or services) is created when
the products are sold with the warranties. Even though the seller does not know
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11. There are no conditions in which a probable loss tied to a future event can create a
12.A A wage bracket withholding table shows for a pay period of a given length (weekly,
13.A Single employee earning $725 with two allowances has $76 taxes withheld.
Single employee earning $625 with no allowances has $81 taxes withheld.
15. At December 31, 2013, Google reports the following accrued expenses:
16. At December 31, 2013, Samsung reports nine current liabilities: Trade and other
17. Samsung’s current liabilities include one income-tax-related liability titled: Income
tax payable. This account reflects taxes that must be paid to the government in the
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QUICK STUDIES
Quick Study 9-1 (5 minutes)
Items 1, 4, 5 and 6 are current liabilities for this company.
Quick Study 9-2 (10 minutes)
Sept. 30
Cash ..........................................................................
6,300
Sales ................................................................
6,000
Sales Taxes Payable ................................
300
To record cash sales and 5% sales tax.
Sept. 30
Cost of Goods Sold .................................................
3,900
Merchandise Inventory ................................
3,900
To record cost of Sept. 30 sales.
Oct. 15
Sales Taxes Payable ...............................................
300
Cash ................................................................
300
To record remittance of sales taxes to govt.
Quick Study 9-3 (10 minutes)
Oct. 31
Cash ..........................................................................
5,000,000
Unearned Ticket Revenue ................................
5,000,000
To record sales in advance of concerts.
Nov. 5
Unearned Ticket Revenue ................................
1,250,000
Earned Ticket Revenue ................................
1,250,000
To record concert revenues earned.
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Quick Study 9-4 (15 minutes)
1. Computation of interest payable at December 31, 2015:
Days from November 7 to December 31 ....................
54 days
Accrued interest (8% x $160,000 x 54/360) ................
$1,920
2. 2015
Dec.31
Interest Expense ......................................................
1,920
Interest Payable ................................................
To record accrued interest (8% x $160,000 x 54/360).
3. 2016
Feb. 5
Interest Expense ......................................................
1,280
Interest Payable .......................................................
1,920
Notes Payable ..........................................................
160,000
Cash ................................................................
To record payment of note plus interest
(8% x $160,000 x 90/360 = 3,200).
Quick Study 9-5 (15 minutes)
Jan. 15
Sales Salaries Expense ...........................................
35,000.00
FICASocial Sec. Taxes Payable* ..................
FICAMedicare Taxes Payable** ....................
Employee Fed. Inc. Taxes Payable ..................
Employee Medical Insurance Payable .............
Employee Union Dues Payable ........................
Salaries Payable ................................................
To record payroll for period.
* $35,000 x 6.2%
** $35,000 x 1.45%
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Quick Study 9-6 (15 minutes)
[Note: Two months (January and February) of earnings have
already been recorded for each of the 10 employees.]
Mar. 31
Payroll Taxes Expense ............................................
2,730.00
FICASocial Security Taxes Payable1 ............
1,240.00
FICAMedicare Taxes Payable2 .......................
290.00
State Unemployment Taxes Payable3 ..............
1,080.00
Federal Unemployment Taxes Payable4 ..........
120.00
To record employer payroll taxes.
1(10 x $2,000) x 6.2% = $1,240.00
2(10 x $2,000) x 1.45% = $290.00
3(10 x $2,000 [check $2,000 under max: $7,000 {$2,000 x 2}]) x 5.4% = $1,080.00
4(10 x $2,000 [check $2,000 under max: $7,000 {$2,000 x 2}]) x 0.6% = $120.00
Quick Study 9-7 (5 minutes)
Dec. 31
Employee Bonus Expense ......................................
15,000
Bonus Payable .................................................
15,000
To record expected bonus costs.
Quick Study 9-8 (5 minutes)
Vacation Benefits Expense* ...................................
500
Vacation Benefits Payable ..............................
500
To record vacation benefits accrued.
* ($6,500-6,000)
Quick Study 9-9 (10 minutes)
2014
Sep 11
Cash ..........................................................................
500
Sales ....................................................................
500
To record mower sales.
Sep 11
Warranty Expense ...................................................
40
Estimated Warranty Liability .............................
40
To record estimated warranty expense.
2015
July 24
Estimated Warranty Liability ................................
35
Repair Parts Inventory .......................................
35
To record cost of warranty repairs.
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Quick Study 9-10 (10 minutes)
1. (b); reasonis reasonably estimated but not a probable loss.
2. (b); reasonprobable loss but cannot be reasonably estimated.
3. (a); reasoncan be reasonably estimated and loss is probable.
Quick Study 9-11 (10 minutes)
Quick Study 9-12A (15 minutes)
Gross Pay ............................................................................
$740.00
Social Security tax deduction (6.2%) ..............................
$45.88
Medicare tax deduction (1.45%) ......................................
10.73
Federal income tax deduction (from Exhibit 9A.6) ........
96.00
State income tax deduction (1.0%) ................................
7.40
Total deductions ...............................................................
160.01
Net Pay .................................................................................
Quick Study 9-13B (10 minutes)
Dec. 31
Income Taxes Expense ...........................................
40,000
Income Taxes Payable ......................................
34,000
Deferred Income Tax Liability ..........................
6,000
To record tax expense and deferred tax liability.
Quick Study 9-14 (10 minutes)
a. The definitions and characteristics of current liabilities are broadly
$1,885,000
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EXERCISES
Exercise 9-1 (10 minutes)
1.
L
3.
L
5.
C
7.
N
9.
C
2.
C
4.
C
6.
C
8.
C
10.
C
Exercise 9-2 (10 minutes)
[Note: All entries dated December 31, 2015]
1.
Cash ..........................................................................
10,400
Sales ....................................................................
Sales Taxes Payable ..........................................
To record sales and sales taxes.
Cost of Goods Sold ..................................................
5,000
Merchandise Inventory ......................................
To record cost of sales.
2.
Unearned Services Revenue ...................................
50,000
Earned Services Revenue .................................
To record revenue earned.
Exercise 9-3 (30 minutes)
1. Maturity date = May 15 + 60 days = July 14, 2015
2a.
May 15
Cash ..........................................................................
110,000
Notes Payable ....................................................
110,000
Borrowed cash by issuing an interest-bearing note.
2b.
July 14
Interest Expense* ....................................................
2,200
Notes Payable ..........................................................
110,000
Cash ....................................................................
112,200
Repaid note plus interest.
* Principal ................................
$110,000
x Interest rate .........................
12%
x Fraction of year ..................
60/360
Total interest ..........................
$ 2,200
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Exercise 9-4 (30 minutes)
1. Maturity date = November 1 + 90 days = January 30, 2016.
2.
Principal .....................................................
$200,000
x Interest rate .............................................
9%
x Fraction of year (Nov. 1 Dec. 31)........
60/360
Total interest in 2015 ................................
$ 3,000
3.
Principal .....................................................
$200,000
x Interest rate .............................................
9%
x Fraction of year (Jan. 1 Jan. 30).........
30/360
Total interest in 2016 ................................
$ 1,500
4a.
2015
Nov. 1
Cash ..........................................................................
200,000
Notes Payable ....................................................
200,000
Borrowed cash by issuing an interest-bearing note.
4b.
2015
Dec. 31
Interest Expense ......................................................
3,000
Interest Payable .................................................
3,000
Accrued interest on note payable.
4c.
2016
Jan. 30
Interest Expense ......................................................
1,500
Interest Payable .......................................................
3,000
Notes Payable ..........................................................
200,000
Cash ....................................................................
204,500
Repaid note plus interest.
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Exercise 9-5 (20 minutes)
Subject
to Tax
Rate
Tax
Explanation
a.
FICA--Social Security ......
$ 800
6.20%
$ 49.60
Full amount is subject to tax.
FICAMedicare ...............
800
1.45
11.60
Full amount is subject to tax.
FUTA ...................................
600
0.60
3.60
$200 is over the maximum.
SUTA ..................................
600
2.90
17.40
$200 is over the maximum.
b.
FICA--Social Security ......
$2,100
6.20%
$130.20
Full amount is subject to tax.
FICAMedicare ...............
2,100
1.45
30.45
Full amount is subject to tax.
FUTA ...................................
0
0.60
0.00
Full amount is over maximum.
SUTA ..................................
0
2.90
0.00
Full amount is over maximum.
c.
FICA--Social Security ......
$6,300
6.20%
$390.60
$1,700 is over the maximum.
FICAMedicare ...............
8,000
1.45
116.00
Full amount is subject to tax.
FUTA ...................................
0
0.60
0.00
Full amount is over maximum.
SUTA ..................................
0
2.90
0.00
Full amount is over maximum.
Exercise 9-6 (10 minutes)
Sept. 30
Salaries Expense .....................................................
800.00
FICASocial Security Taxes Payable .............
49.60
FICAMedicare Taxes Payable .......................
11.60
Employee Federal Income Taxes Payable .........
80.00
Salaries Payable ................................................
658.80
To record payroll for pay period ended September 30.
Exercise 9-7 (10 minutes)
Sept. 30
Payroll Taxes Expense ............................................
82.20
FICASocial Security Taxes Payable .............
49.60
FICAMedicare Taxes Payable .......................
11.60
Federal Unemployment Taxes Payable ...........
3.60
State Unemployment Taxes Payable ...............
17.40
To record employer payroll taxes.
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Exercise 9-8 (30 minutes)
1. July 31
Sales Salaries Expense ...........................................
200,000
Office Salaries Expense ..........................................
160,000
FICASocial Sec. Taxes Payable ....................
22,320
FICAMedicare Taxes Payable ........................
5,220
Employee Fed. Inc. Taxes Payable ...................
90,000
Employee State Inc. Taxes Payable .................
20,000
Employee Medical Insurance Payable* ............
2,800
Employee Life Insurance Payable** .................
1,600
Employee Union Dues Payable .........................
1,000
Salaries Payable .................................................
217,060
To record payroll for period.
* $7,000 x 40% ** $4,000 x 40%
2. July 31
Salaries Payable .......................................................
217,060
Cash ................................................................
217,060
To record payment of payroll.*
*Check numbers may be entered in the Payroll Register.
3. July 31
Payroll Taxes Expense ............................................
30,540
FICASocial Sec. Taxes Payable ....................
22,320
FICAMedicare Taxes Payable ........................
5,220
State Unemployment Taxes Payable................
2,700
Federal Unemployment Taxes Payable ...........
300
To record employer payroll taxes.
SUTA = $50,000 x 5.4% = $2,700
FUTA = $50,000 x 0.6% = $300
FICASocial Sec. & Medicare = Same as employees
July 31
Employee Benefits Expense ................................
6,600
Employee Medical Insurance Payable* ............
4,200
Employee Life Insurance Payable** .................
2,400
To record costs of employee benefits.
* $7,000 x 60% ** $4,000 x 60%
4. July 31
FICASocial Security Taxes Payable....................
44,640
FICAMedicare Taxes Payable ..............................
10,440
Employee Fed. Income Taxes Payable. .................
90,000
Employee State Income Taxes Payable. ................
20,000
Employee Medical Insurance Payable ...................
7,000
Employee Life Insurance Payable ..........................
4,000
Employee Union Dues Payable ...............................
1,000
State Unemployment Taxes Payable ......................
2,700
Federal Unemployment Taxes Payable..................
300
Cash ................................................................
180,080
To record payment of FICA, income taxes, SUTA,
FUTA, union dues, and insurance premiums.
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Exercise 9-9 (30 minutes)
a.
Employee
Cumulative
Pay
Pay Subject to
FICA Social
Security
Pay Subject
to FICA
Medicare
Pay Subject
to FUTA
Taxes
Pay Subject
to SUTA
Taxes
Ken S ...................
$ 6,000
$ 6,000
$ 6,000
$ 6,000
$ 6,000
Tim V ....................
60,200
60,200
60,200
7,000
7,000
Steve S ................
87,000
87,000
87,000
7,000
7,000
Ann T ...................
146,500
117,000
146,500
7,000
7,000
Kathleen K ...........
106,900
106,900
106,900
7,000
7,000
Michelle H ............
117,000
117,000
117,000
7,000
7,000
Lori K ...................
119,500
117,000
119,500
7,000
7,000
Kitty O ..................
36,900
36,900
36,900
7,000
7,000
John W ................
4,000
4,000
4,000
4,000
4,000
Totals ...................
$684,000
$652,000
$684,000
$59,000
$59,000
b. FICA Social Security taxes
$80,848.00 = $652,000 x 6.2% x 2 (for employer and employee)
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©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Financial Accounting Fundamentals, 5th Edition
514
Exercise 9-10 (25 minutes)
1. Warranty Expense = 4% of dollar sales = 4% x $6,000 = $240
2. The December 31, 2015, balance of the liability equals the expense
3. The company should report no additional warranty expense in 2016 for
this copier.
4. The December 31, 2016, balance of the Estimated Warranty Liability
account equals the 2016 beginning balance minus the costs incurred in
5. Journal entries
2015
(a)
Aug. 16
Cash ..........................................................................
6,000
Sales ...................................................................
6,000
To record cash sale of copier.
Aug. 16
Cost of Goods Sold .................................................
4,800
Merchandise Inventory .....................................
4,800
To record cost of August 16 sale.
(b)
Dec. 31
Warranty Expense ...................................................
240
Estimated Warranty Liability ............................
240
To record warranty expense for copier sold in 2015.
2016
(c)
Nov. 22
Estimated Warranty Liability ..................................
209
Repair Parts Inventory ......................................
209
To record cost of warranty repairs.
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Exercise 9-11 (15 minutes)
1. B = 0.03 ($500,000 B)
B = $15,000 0.03B
1.03B = $15,000
B = $14,563 (rounded to nearest dollar)
2.
3.
2016
Exercise 9-12 (10 minutes)
[Note: All entries dated December 31, 2015.]
1.
Vacation Benefits Expense ...........................................
3,200
Vacation Benefits Payable ......................................
3,200
To record vacation benefits expense
[20 employees x 1 day x $160].
2.
Warranty Expense..........................................................
18,000
Estimated Warranty Liability ................................
18,000
To record warranty expense [12,000 units x 10% x $15].
Exercise 9-13 (10 minutes)
[Note: All entries dated December 31, 2015.]
1. No adjusting entry is required since it is not probable that the supplier will
2. No adjusting entry can be made since the loss cannot be reasonably
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Exercise 9-14 (15 minutes)
(a)
(b)
(c)
(d)
(e)
(f)
Numerator
Income before
interest & taxes ....
$194,000
$176,000
$182,000
$379,000
$103,000
$ 5,000
Denominator
Interest expense ......
$ 44,000
$ 16,000
$ 12,000
$ 14,000
$ 14,000
$10,000
Ratio ......................
4.41
11.00
15.17
27.07
7.36
0.50
Analysis: Company (d) has the strongest ability to pay interest expense as it
comes due as evidenced by the company’s times interest earned (coverage)
ratio of 27.07 times.
Exercise 9-15B (25 minutes)
1.
Income Taxes Payable (target balance) ...............................................
$28,300
Total accrued [($28,600 + $19,100 + $34,600) x .30] ............................
24,690
Adjustment (additional expense) ..........................................................
$ 3,610
2.
2015
(a)
Dec. 31
Income Tax Expense ................................................
3,610
Income Taxes Payable .......................................
3,610
To adjust tax expense and liability.
2016
(b)
Jan. 20
Income Taxes Payable .............................................
28,300
Cash .....................................................................
28,300
To make the final quarterly payment
of income taxes for 2015.
Exercise 9-16A (15 minutes)
Regular pay (40 hours @ $14) ...........................................
$560.00
Overtime premium pay (8 hours @ [$14 x 150%]) ...........
168.00
Gross pay ..........................................................................
728.00
FICASocial Security tax deduction (6.2%) ....................
$ 45.14
FICAMedicare tax deduction (1.45%) ............................
10.56
Income tax deduction (from Exhibit 9A.6) ........................
76.00
Total deductions ...............................................................
131.70
Net pay .................................................................................
$596.30
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Exercise 9-17 (30 minutes)
(a)
Employee
Cumulative
Pay (Excludes
Current Period)
Current Period Gross Pay
FIT
Withholding
FUTA
FICA S.S.
Employee
FICA
Medicare
Employee
Employee
Benefits Plan
Withholding
Employee
Net Pay
Pay
Type
Pay
Hours
Gross Pay
SIT
Withholding
SUTA
FICA S.S.
Employer
FICA
Medicare
Employer
Employer
Benefits Plan
Expense
Kathleen
115,200.00
Salary
---
7,000.00
2,000.00
0.00
111.60
101.50
350.00
4,136.90
300.00
0.00
111.60
101.50
700.00
Anthony
6,800.00
Salary
---
500.00
80.00
1.20
31.00
7.25
25.00
336.75
20.00
10.80
31.00
7.25
50.00
Nichole
15,000.00
Regular
80
800.00
110.00
0.00
57.04
13.34
46.00
668.62
Overtime
8
120.00
920.00
25.00
0.00
57.04
13.34
92.00
Zoey
6,500.00
Regular
80
800.00
100.00
3.00
53.32
12.47
43.00
629.21
Overtime
4
60.00
860.00
22.00
27.00
53.32
12.47
86.00
Gracie
5,000.00
Regular
74
740.00
90.00
4.44
45.88
10.73
37.00
535.39
Overtime
0
0.00
740.00
21.00
39.96
45.88
10.73
74.00
Totals
148,500.00
10,020.00
2,380.00
8.64
298.84
145.29
501.00
6,306.87
388.00
77.76
298.84
145.29
1,002.00

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