Chapter 09 – Reporting and Analyzing Current Liabilities
Exercise 9-10 (15 minutes)
1. B = 0.03 ($500,000 – B)
1.03B = $15,000
2.
2013
Dec. 31 Employee Bonus Expense ………………………….. 14,563
3.
2014
Jan. 19 Bonus Payable ……………………………………………. 14,563
Exercise 9-11 (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 9-12 (15 minutes)
(a)
(b)
(c)
(d)
(e)
Numerator
Income before
interest & taxes ….
$194,000
$176,000
$182,000
$379,000
$103,000
Denominator
Interest expense …...
$ 44,000
$ 16,000
$ 12,000
$ 14,000
$ 14,000
Ratio ………………….
4.41
11.00
15.17
27.07
7.36
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 9-13B (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.
2013
(a)
Dec. 31
Income Tax Expense …………………………………………
3,610
Income Taxes Payable …………………………………
3,610
To adjust tax expense and liability.
2014
(b)
Jan. 20
Income Taxes Payable ………………………………………
28,300
Cash ……………………………………………………………
28,300
To make the final quarterly payment
of income taxes for 2013.
Exercise 9-14A (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 9-16 (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
Christina S ..……..
152,800
113,700
152,800
7,000
7,000
Kathleen K ………..
106,900
106,900
106,900
7,000
7,000
Michelle H ….……..
113,700
113,700
113,700
7,000
7,000
Lori K ………..……..
116,600
113,700
116,600
7,000
7,000
Matt B ……….……..
36,800
36,800
36,800
7,000
7,000
John W ……..……..
4,000
4,000
4,000
4,000
4,000
Totals ………..……..
$684,000
$642,000
$684,000
$59,000
$59,000
$ 354.00 = $59,000 x 0.6%
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.
6,306.87
To record payment of payroll.
Aug 31
298.84
145.29
Federal Unemployment Taxes Payable ….…….
State Unemployment Taxes Payable…………….
Aug 31
Employee Benefits Plan Payable ………………….
1,002.00
To record costs of employee benefits.
Employee Benefits Plan Payable ……………………….
Cash …………………………………………………….…
© 2015 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Financial Accounting, 7th Edition
18
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 2012
Total interest for note …………………………………………….
$ 560
Fraction of term in 2012 …………………………………………
33/60
Accrued interest expense ………………………………………
$ 308
4.
Interest on Fargo note in 2013
Total interest for note …………………………………………….
$ 560
Fraction of term in 2013 …………………………………………
27/60
Interest expense in 2013 ………………………………………..
$ 252
Problem 9-2A (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Dahlia
Trey
Kiesha
Chee
Total
Maximum base …………
$113,700
$113,700
$113,700
$113,700
Earned through 8/18 …
112,600
112,800
7,100
1,050
Amount subject to tax
$ 1,100
$ 900
$106,600
$112,650
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