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
Earned through 8/18 …..
115,900
116,100
7,100
1,050
Yet under maximum ……
$ 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%
Social Security tax ……..
$ 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.
Dec. 9
Estimated Warranty Liability …………………………….
300
Merchandise Inventory ……………………………….
300
To record cost of razor warranty
replacements (15 x $20).
16
Cash ………………………………………………………………..
16,500
Sales ………………………………………………………….
16,500
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).
29
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
To record razor warranty expense
and liability at 8% of selling price.
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%
$60,000
$260,000
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
FICASocial Security Taxes Payable ………….……
3,472
FICAMedicare 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
FICASocial Sec. Taxes Payable …………..……
1,736
FICAMedicare Taxes Payable ……………..……
406
Employee Fed. Income Taxes Payable …………
4,000
Salaries Payable …………………………………………
21,858
To record payroll for the period.
Cash ……………………………………………………....
To record payment of payroll.*
31
FICASocial Sec. Taxes Payable …………..……
FICAMedicare Taxes Payable ……………..……
State Unemployment Taxes Payable ……………
Federal Unemployment Taxes Payable …..……
Subject to SUTA/FUTA in March = $7,000 – $5,600 = $1,400
FUTA = $1,400 x 10 employees x 0.6% = $84
Problem 9-6AA (Concluded)
Apr. 15
FICASocial Security Taxes Payable ………….……
3,472
FICAMedicare 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 9-1B (45 minutes)
Fox
Products
Spring
Bank
City
Bank
1.
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
2.
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
3.
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 PayableFox Products ……………….
5,000
Purchased merchandise on credit.
May 23
Accounts PayableFox Products …………………….
5,000
Cash …………………………………………………………..
400
Notes PayableFox 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 PayableSpring Bank ………………………
12,000
Borrowed cash with a 120-day, 10% note.
Interest Expense …………………………..………………….
4,600
Cash …………………………………………………………..
Paid note with interest.
Nov. 12
Interest Expense …………………………..………………….
Cash …………………………………………………………..
12,400
Paid note with interest.
Cash ………………………………………………………………..
Notes PayableCity Bank …………………………..
Interest Payable ………………………………………….
Interest Expense …………………………..………………….
8,000
Paid note with interest.