Chapter 09 – Reporting and Analyzing Current Liabilities
Problem 9-2A (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 …..
112,600
112,800
7,100
1,050
Amount subject to tax ..
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
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
10.60
$ 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 9-3A (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 9-4A (Concluded)
2013
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).
Merchandise Inventory ……………………………….
1,000
replacements (50 x $20).
Warranty Expense ……………………………………………
Estimated Warranty Liability ……………………….
and liability at 8% of selling price.
November ……………..
December ………………
Total ……………………..
Sales in January ………………………...
Warranty percent ………………………..
Warranty expense for November ………………………………
credit
Warranty expense for December ………………………………
credit
Cost of replacing items in December (45 x $20) ………..
Beginning balance ………………………………………………….
credit
Warranty expense for January ………………………………..
credit
Cost of replacing items in January (50 x $20) …………..
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
decreases in sales produce greater decreases in net income. The
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 ………..……
532
Cash ……………………………………………………....
532
To record payment of FUTA taxes [$448 + $84].
30
No entry required upon mailing Form 941.
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Solutions Manual, Chapter 9
29
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 2012
Total interest for note ……………………………………………………....
$ 90
Fraction of term in 2012 …………………………………………………....
25/45
Accrued interest expense ………………………………………………...
$ 50
4. Interest in 2013
Total interest for note ……………………………………………………....
$ 90
Fraction of term in 2013 …………………………………………………....
20/45
Interest expense in 2013…………………………………………………...
$ 40
Problem 9-1B (Concluded)
5.
2012
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.