Exercise 9-17 (concluded)
(b)
Aug 31
Salaries (or Wages) Expense …………………………..
10,020.00
FICA—Social Sec. Taxes Payable ………….…….
298.84
FICA—Medicare Taxes Payable ……………..…….
145.29
Employee Fed. Inc. Taxes Payable ……………….
2,380.00
Employee State Inc. Taxes Payable ……….…….
388.00
Employee Benefits Plan Payable ………………….
501.00
Salaries Payable ………………………………………….
6,306.87
To record payroll for period.
Aug 31
Salaries (or Wages) Payable ……………………….….
6,306.87
Cash …………………………………………………….…
6,306.87
To record payment of payroll.
(d)
Aug 31
Payroll Taxes Expense ……………………………….…….
530.53
FICA⎯Social Sec. Taxes Payable ………….…….
298.84
FICA⎯Medicare Taxes Payable ……………..…….
145.29
Federal Unemployment Taxes Payable ….…….
8.64
State Unemployment Taxes Payable…………….
77.76
To record employer payroll taxes.
Aug 31
Employee Benefits Expense ……………………….….
1,002.00
Employee Benefits Plan Payable ………………….
1,002.00
To record costs of employee benefits.
(e)
Aug 31
FICA⎯Social Security Taxes Payable………….…….
597.68
FICA⎯Medicare Taxes Payable …………………..…….
290.58
Employee Fed. Income Taxes Payable. ……….…….
2,380.00
Employee State Income Taxes Payable. …………….
388.00
Employee Benefits Plan Payable ……………………….
1,503.00
Federal Unemployment Taxes Payable………..…….
8.64
State Unemployment Taxes Payable ………………….
77.76
Cash …………………………………………………….…
5,245.66
To record payment of FICA, income taxes,
SUTA, FUTA, and benefit plan contributions.
Exercise 9-18 (25 minutes)
(in SEK millions)
1.
Warranty Expense ……………………………………………
7,706
Estimated Warranty Liability ……………………….
7,706
To record warranty expense and liability.
2.
Estimated Warranty Liability …………………………….
6,677
Inventory…………………………………………………….
6,677
To record cost of warranty replacements.
PROBLEM SET A
Problem 9-1A (45 minutes)
Locust
Natl. Bank
Fargo
Maturity dates
Date of the note …………………………
May 19
July 8
Nov. 28
Term of the note (in days) …….……
90
120
60
Maturity date ………………………..…
Aug. 17
Nov. 5
Jan. 27
Interest due at maturity
Principal of the note …………….……
$35,000
$80,000
$42,000
Annual interest rate ……………..……
10%
9%
8%
Fraction of year …………………………
90/360
120/360
60/360
Interest expense…………………..……
$ 875
$ 2,400
$ 560
Accrued interest on Fargo note at the end of 2014
Total interest for note …………………………………………….
$ 560
Fraction of term in 2014 …………………………………………
33/60
Accrued interest expense ………………………………………
$ 308
Interest on Fargo note in 2015
Total interest for note …………………………………………….
$ 560
Fraction of term in 2015 …………………………………………
27/60
Interest expense in 2015 ………………………………………..
$ 252
Problem 9-1A (Concluded)
5.
2014
Apr. 20
Merchandise Inventory …………………………………….
40,250
Accounts Payable—Locust …………………………
40,250
Purchased merchandise on credit.
May 19
Accounts Payable—Locust ………………………………
40,250
Cash …………………………………………………………..
5,250
Notes Payable—Locust ……………………………….
35,000
Paid $5,250 cash and gave a 90-day,
10% note to extend due date on account.
July 8
Cash ………………………………………………………………..
80,000
Notes Payable—National …………………………….
80,000
Borrowed cash with a 120-day, 9% note.
Aug. 17
Interest Expense ………………………………………………
875
Notes Payable—Locust …………………………………….
35,000
Cash …………………………………………………………..
35,875
Paid note with interest.
Nov. 5
Interest Expense ………………………………………………
2,400
Notes Payable—National Bank …………………………
80,000
Cash …………………………………………………………..
82,400
Paid note with interest.
Cash ………………………………………………………………..
42,000
Notes Payable—Fargo Bank ………………………..
42,000
Borrowed cash with 60-day, 8% note.
Interest Expense ………………………………………………
308
Interest Payable ………………………………………….
Jan. 27
Interest Expense ………………………………………………
252
Notes Payable—Fargo Bank ……………………………..
42,000
Interest Payable ………………………………………………
308
Cash …………………………………………………………..
42,560
Paid note with interest.
Problem 9-2A (25 minutes)
Part 1
Jan. 8
Office Salaries Expense ……………………………..…….
22,760.00
Sales Salaries Expense …………………………..….…….
65,840.00
FICA—Social Sec. Taxes Payable* ………..…….
5,493.20
FICA—Medicare Taxes Payable** ………….…….
1,284.70
Employee Fed. Inc. Taxes Payable ………..…….
12,860.00
Employee Medical Insurance Payable ………….
1,340.00
Employee Union Dues Payable ……………..…….
840.00
Salaries Payable …………………………………..…….
66,782.10
To record payroll for period.
* $88,600 x 6.2%
** $88,600 x 1.45%
Part 2
Jan. 8
Payroll Taxes Expense ……………………………….…….
10,853.50
FICA—Social Sec. Taxes Payable ………….…….
5,493.20
FICA—Medicare Taxes Payable …………….…….
1,284.70
State Unemployment Taxes Payable* …….…….
3,544.00
Federal Unemployment Taxes Payable** ….…….
531.60
To record employer payroll taxes.
* $88,600 x .04 = $3,544.00
**$88,600 x .006 = $531.60
Problem 9-3A (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
Earned this week ………..
$ 2,000
$ 900
$ 450
$ 400
Subject to tax ……………..
1,100
900
450
400
Tax rate ……………………..
6.20%
6.20%
6.20%
6.20%
Social Security tax ……..
$ 68.20
$ 55.80
$ 27.90
$ 24.80
$176.70
2. Each employee’s FICA withholdings for Medicare (no limits)
Dahlia
Trey
Kiesha
Chee
Total
Earned this week ………
$ 2,000
$ 900
$ 450
$ 400
Tax rate ……………………
1.45%
1.45%
1.45%
1.45%
Medicare tax …………….
$ 29.00
$ 13.05
$ 6.53
$ 5.80
$ 54.38
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
Amount from part 2 …..
$ 29.00
$ 13.05
$ 6.53
$ 5.80
$ 54.38
Problem 9-3A (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
Earned this week …………..
$ 2,000
$ 900
$ 450
$ 400
Subject to tax ………………..
0
0
0
400
Tax rate ………………………..
0.6%
0.6%
0.6%
0.6%
FUTA tax ……………………...
$ 0.00
$ 0.00
$ 0.00
$ 2.40
$ 2.40
6. Employer’s SUTA taxes
Dahlia
Trey
Kiesha
Chee
Total
Subject to tax (from 5) …
$ 0
$ 0
$ 0
$ 400
Tax rate ………………………
2.15%
2.15%
2.15%
2.15%
SUTA tax …………………….
$ 0.00
$ 0.00
$ 0.00
$ 8.60
$ 8.60
7. Each employee’s net (take-home) pay
Dahlia
Trey
Kiesha
Chee
Total
Gross earnings …………..
$2,000.00
$ 900.00
$450.00
$400.00
$3,750.00
Less
FICA Social Sec. tax …..
(68.20)
(55.80)
(27.90)
(24.80)
(176.70)
FICA Medicare taxes …..
(29.00)
(13.05)
(6.53)
(5.80)
(54.38)
Withholding taxes ………
(284.00)
(145.00)
(39.00)
(30.00)
(498.00)
Health insurance ………..
(30.00)
(30.00)
(30.00)
(30.00)
(120.00)
Take–home pay …………..
$1,588.80
$ 656.15
$346.57
$309.40
$2,900.92
8. Employer’s total payroll–related expense for each employee
Dahlia
Trey
Kiesha
Chee
Total
Gross earnings …………...
$2,000.00
$ 900.00
$450.00
$400.00
$3,750.00
Plus
FICA Social Sec. tax …….
68.20
55.80
27.90
24.80
176.70
FICA Medicare taxes …...
29.00
13.05
6.53
5.80
54.38
FUTA tax ……………………..
0.00
0.00
0.00
2.40
2.40
SUTA tax ……………………..
0.00
0.00
0.00
8.60
8.60
Health insurance ………….
30.00
30.00
30.00
30.00
120.00
Pension contrib. (8%) …..
160.00
72.00
36.00
32.00
300.00
Total payroll expense …..
$2,287.20
$1,070.85
$550.43
$503.60
$4,412.08
Problem 9-4A (40 minutes)
1.
2014
Nov. 11
Cash ………………………………………………………………..
7,875
Sales ………………………………………………………….
7,875
Sold razors to customers.
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
To record razor warranty expense
and liability at 8% of selling price.
Estimated Warranty Liability …………………………….
300
Merchandise Inventory ……………………………….
300
To record cost of razor warranty
replacements (15 x $20).
16
Cash ………………………………………………………………..
Sales ………………………………………………………….
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).
Estimated Warranty Liability …………………………….
600
Merchandise Inventory ……………………………….
600
To record cost of razor warranty
replacements (30 x $20).
31
Warranty Expense ……………………………………………
1,320
Estimated Warranty Liability ……………………….
1,320
Problem 9-4A (Concluded)
2015
Jan. 5
Cash ………………………………………………………………..
11,250
Sales ………………………………………………………….
11,250
Sold razors to customers.
5
Cost of Goods Sold ………………………………………….
3,000
Merchandise Inventory ……………………………….
3,000
To record cost of January 5 sale (150 x $20).
17
Estimated Warranty Liability …………………………….
1,000
Merchandise Inventory ……………………………….
1,000
To record cost of razor warranty
replacements (50 x $20).
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
November ……………..
$ 7,875
8%
$ 630
December ………………
16,500
8
1,320
Total ……………………..
$24,375
$1,950
3. Warranty expense for January 2015
Sales in January ………………………...
$11,250
Warranty percent ………………………..
8%
Warranty expense ……………………...
$ 900
4. Balance of the estimated liability as of December 31, 2014
Warranty expense for November ………………………………
$ 630
credit
Warranty expense for December ………………………………
1,320
credit
Cost of replacing items in December (45 x $20) ………..
(900)
debit
Estimated Warranty Liability balance ……………………….
$1,050
credit
5. Balance of the estimated liability as of January 31, 2015
Beginning balance ………………………………………………….
$1,050
credit
Warranty expense for January ………………………………..
900
credit
Cost of replacing items in January (50 x $20) …………..
(1,000)
debit
Estimated Warranty Liability balance ………………………
$ 950
credit
Problem 9-5A (60 minutes)
1. Miller Company
2. Weaver Company
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
Income before interest …………...
260,000
520,000
Interest expense (fixed) …………..
60,000
260,000
Net income ……………………………..
$ 200,000
$ 260,000
Net income increases by* ……....
43%
86%
* 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
Income before interest …………...
300,000
600,000
Interest expense (fixed) …………..
60,000
260,000
Net income ……………………………..
$ 240,000
$ 340,000
Net income increases by ………...
71%
143%
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
Income before interest …………...
360,000
720,000
Interest expense (fixed) …………..
60,000
260,000
Net income ……………………………..
$ 300,000
$ 460,000
Net income increases by ………...
114%
229%
Problem 9-5A (Continued)
6. Sales decrease by 10% (multiply prior sales by 0.9)
Miller Co.
Weaver Co.
Sales …………………………..……..
$900,000
$900,000
Variable expenses ……………..
720,000
540,000
Income before interest ……….
180,000
360,000
Interest expense (fixed) ………
60,000
260,000
Net income …………………………
$120,000
$100,000
Net income decreases by ……
–14%
–29%
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
Income before interest ……….
160,000
320,000
Interest expense (fixed) ………
60,000
260,000
Net income …………………………
$100,000
$ 60,000
Net income decreases by ……
–29%
–57%
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
Income before interest ……….
120,000
240,000
Interest expense (fixed) ………
60,000
260,000
Net income …………………………
$ 60,000
$ (20,000)
Net income decreases by ……
–57%
–114%
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
Problem 9-6AA (50 minutes)
Mar. 15
FICA⎯Social Security Taxes Payable ………….……
3,472
FICA⎯Medicare Taxes Payable …………………..……
812
Employee Fed. Income Taxes Payable. ………..……
4,000
Cash ……………………………………………………....
8,284
To record payment of FICA & federal income taxes.
31
Office Salaries Expense ……………………………………
11,200
Shop Salaries Expense ……………………………….……
16,800
FICA⎯Social Sec. Taxes Payable …………..……
1,736
FICA⎯Medicare Taxes Payable ……………..……
406
Employee Fed. Income Taxes Payable …………
4,000
Salaries Payable …………………………………………
21,858
To record payroll for the period.
31
Salaries Payable ………………………………………………
21,858
Cash ……………………………………………………....
21,858
To record payment of payroll.*
*Check numbers are likely entered in the Payroll Register.
31
Payroll Taxes Expense* ……………………………….……
2,786
FICA⎯Social Sec. Taxes Payable …………..……
1,736
FICA⎯Medicare Taxes Payable ……………..……
406
State Unemployment Taxes Payable ……………
560
Federal Unemployment Taxes Payable …..……
84
To record employer payroll taxes.
*Amount earned through 2/28 = 2 x $2,800 = $5,600
Subject to SUTA/FUTA in March = $7,000 – $5,600 = $1,400
SUTA = $1,400 x 10 employees x 4.0% = $560
FUTA = $1,400 x 10 employees x 0.6% = $84
FICA⎯Social Security Taxes = $1,736 (same as employees)
FICA⎯Medicare Taxes = $406 (same as employees)
Problem 9-6AA (Concluded)
Apr. 15
FICA⎯Social Security Taxes Payable ………….……
3,472
FICA⎯Medicare Taxes Payable …………………..……
812
Employee Fed. Income Taxes Payable ………………
4,000
Cash ……………………………………………………....
8,284
To record payment of FICA & federal income taxes.
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
Cash ……………………………………………………....
420
To record payment of FUTA taxes [$336 + $84].
30
No entry required upon mailing Form 941.
PROBLEM SET B
Problem 9-1B (45 minutes)
Fox
Products
Spring
Bank
City
Bank
Maturity dates
Date of the note …………………….…….
May 23
July 15
Dec. 6
Term of the note (in days) ……..…….
60
120
45
Maturity date …………………………..
July 22
Nov. 12
Jan. 20
Interest due at maturity
Principal of the note …………………….
$4,600
$12,000
$8,000
Annual interest rate …………………….
15%
10%
9%
Fraction of year …………………….…….
60/360
120/360
45/360
Interest expense ………………………….
$ 115
$ 400
$ 90
Accrued interest on City Bank note at the end of 2014
Total interest for note ……………………………………………………....
$ 90
Fraction of term in 2014 …………………………………………………....
25/45
Accrued interest expense ………………………………………………...
$ 50
4. Interest in 2015
Total interest for note ……………………………………………………....
$ 90
Fraction of term in 2015 …………………………………………………....
20/45
Interest expense in 2015…………………………………………………...
$ 40
Problem 9-1B (Concluded)
5.
2014
Apr. 22
Merchandise Inventory …………………………………….
5,000
Accounts Payable⎯Fox Products ……………….
5,000
Purchased merchandise on credit.
May 23
Accounts Payable⎯Fox Products …………………….
5,000
Cash …………………………………………………………..
400
Notes Payable⎯Fox Products …………………….
4,600
Paid $400 cash and gave a 60-day,
15% note to extend due date on account.
July 15
Cash ………………………………………………………………..
12,000
Notes Payable⎯Spring Bank ………………………
12,000
Borrowed cash with a 120-day, 10% note.
22
Interest Expense ………………………………………………
115
Notes Payable⎯Fox Products ………………………….
4,600
Cash …………………………………………………………..
4,715
Paid note with interest.
Nov. 12
Interest Expense ………………………………………………
400
Notes Payable⎯Spring Bank …………………………...
12,000
Cash …………………………………………………………..
12,400
Paid note with interest.
Dec. 6
Cash ………………………………………………………………..
8,000
Notes Payable⎯City Bank …………………………..
8,000
Borrowed cash with a 45-day, 9% note.
Interest Expense ………………………………………………
Interest Payable ………………………………………….
Accrued interest on note payable.
Interest Expense ………………………………………………
Interest Payable ……………………………………………….
Notes Payable⎯City Bank ………………………………..
8,000
Cash …………………………………………………………..
8,090
Paid note with interest.