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
Steve S ……..……..
87,000
87,000
87,000
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)
FICA Medicare taxes
$19,836.00 = $684,000 x 1.45% x 2 (for employer and employee)
FUTA taxes
$ 354.00 = $59,000 x 0.6%
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
4. The December 31, 2016, balance of the Estimated Warranty Liability
account equals the 2016 beginning balance minus the costs incurred in
Exercise 9-11 (15 minutes)
1. B = 0.03 ($500,000 – B)
1.03B = $15,000
2.
2015
Dec. 31 Employee Bonus Expense ………………………….. 14,563
3.
2016
Jan. 19 Bonus Payable …………………………..……………….. 14,563
Exercise 9-12 (10 minutes)
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)
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
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
FICA—Social Security tax deduction (6.2%) ………………..
$ 45.14
FICA—Medicare tax deduction (1.45%) ……………………....
10.56
Income tax deduction (from Exhibit 9A.6) …………………...
76.00
Total deductions …………………………..………………………....
131.70
Net pay ……………………………………………………………………...
$596.30
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
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.
(c)
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
FICASocial Sec. Taxes Payable ………….…….
298.84
FICAMedicare 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
FICASocial Security Taxes Payable ………….…….
597.68
FICAMedicare 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)
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.
3. Volvo would report warranty expense of SEK 7,706 million for 2013.
Problem 9-1A (45 minutes)
Locust
Natl. Bank
Fargo
1.
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
2.
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
3.
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
4.
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.
28
Cash …………………………..……………………………………
42,000
Notes Payable—Fargo Bank ………………………..
42,000
Borrowed cash with 60-day, 8% note.
Dec. 31
Interest Expense ………………………………………………
308
Interest Payable ………………………………………….
308
Accrued interest on note payable.
2015
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