Chapter 09 – Reporting and Analyzing Current Liabilities
Problem 9-2B (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Ahmed
Carlos
June
Marie
Total
Maximum base …………
$113,700
$113,700
$113,700
$113,700
Earned through 9/23 …
112,100
112,185
6,650
22,200
Amount subject to tax
$ 1,600
$ 1,515
$107,050
$ 91,500
Earned this week ………
$ 2,500
$ 1,515
$ 475
$ 1,000
Subject to tax ……………
$ 1,600
$ 1,515
$ 475
$ 1,000
Tax rate ……………………
6.20%
6.20%
6.20%
6.20%
Social Security tax ……
$ 99.20
$ 93.93
$ 29.45
$ 62.00
$284.58
2. Each employee’s FICA withholdings for Medicare (no limits)
Ahmed
June
Marie
Earned this week ………
$ 2,500
$ 475
$ 1,000
Tax rate ……………………
1.45%
1.45%
1.45%
Medicare tax …………….
$ 36.25
$ 6.89
$ 14.50
3. Employer’s FICA taxes for Social Security
Ahmed
June
Marie
Amount from part 1 …..
$ 99.20
$ 29.45
$ 62.00
4. Employer’s FICA taxes for Medicare
Ahmed
June
Marie
Amount from part 2 …..
$ 36.25
$ 6.89
$ 14.50
Problem 9-2B(Concluded)
5. Employer’s FUTA taxes
Ahmed
Carlos
June
Marie
Total
Maximum base …………
$ 7,000
$ 7,000
$ 7,000
$ 7,000
Earned through 9/23 ...
112,100
112,185
6,650
22,200
Amount subject to tax .
$ 0
$ 0
$ 350
$ 0
Earned this week ……..
$ 2,500
$ 1,515
$ 475
$ 1,000
Subject to tax …………..
$ 0
$ 0
$ 350
$ 0
Tax rate ……………………
0.6%
0.6%
0.6%
0.6%
FUTA tax ………………….
$ 0.00
$ 0.00
$ 2.10
$ 0.00
$ 2.10
6. Employer’s SUTA taxes
Ahmed
Carlos
June
Marie
Total
Subject to tax (from 5) .
$ 0
$ 0
$ 350
$ 0
Tax rate ……………………
1.75%
1.75%
1.75%
1.75%
SUTA tax …………………
$ 0.00
$ 0.00
$ 6.13
$ 0.00
$ 6.13
7. Each employee’s net (take-home pay)
Ahmed
Carlos
June
Marie
Total
Gross earnings………….
$2,500.00
$1,515.00
$475.00
$1,000.00
$5,490.00
Less
FICA Social Sec. tax ….
(99.20)
(93.93)
(29.45)
(62.00)
(284.58)
FICA Medicare taxes …
(36.25)
(21.97)
(6.89)
(14.50)
(79.61)
Withholding taxes ……..
(198.00)
(182.00)
(32.00)
(68.00)
(480.00)
Health insurance ……….
(25.00)
(25.00)
(25.00)
(25.00)
(100.00)
Take–home pay ………….
$2,141.55
$1,192.10
$381.66
$830.50
$4,545.81
8. Employer’s total payroll-related expense for each employee
Ahmed
Carlos
June
Marie
Total
Gross earnings………….
$2,500.00
$1,515.00
$475.00
$1,000.00
$5,490.00
Plus
FICA Social Sec. tax ….
99.20
93.93
29.45
62.00
284.58
FICA Medicare taxes …
36.25
21.97
6.89
14.50
79.61
FUTA tax …………………..
0.00
0.00
2.10
0.00
2.10
SUTA tax …………………..
0.00
0.00
6.13
0.00
6.13
Health insurance ……….
25.00
25.00
25.00
25.00
100.00
Pension contrib. (5%) ..
125.00
75.75
23.75
50.00
274.50
Total payroll ………………
$2,785.45
$1,731.65
$568.32
$1,151.50
$6,236.92
Problem 9-4B (40 minutes)
1.
2013
Nov. 16
Cash ………………………………………………………………..
2,500
Sales ………………………………………………………….
2,500
Sold coffee grinders to customers.
16
Cost of Goods Sold ………………………………………….
1,200
Merchandise Inventory ……………………………….
1,200
To record cost of November 16 sale (50 x $24).
Warranty Expense ……………………………………………
Estimated Warranty Liability ……………………….
and liability at 10% of selling price.
Estimated Warranty Liability …………………………….
Merchandise Inventory ……………………………….
18
Cash ………………………………………………………………..
Sales ………………………………………………………….
Sold coffee grinders to customers.
18
Cost of Goods Sold ………………………………………….
4,800
Merchandise Inventory ……………………………….
4,800
To record cost of December 18 sale (200 x $24).
28
Estimated Warranty Liability …………………………….
Merchandise Inventory ……………………………….
warranty replacements (17 x $24).
31
Warranty Expense ……………………………………………
1,000
Estimated Warranty Liability ……………………….
1,000
and liability at 10% of selling price.
Problem 9-5B (60 minutes)
1. Ellis Company
2. Seidel Company
3. Sales increase by 10% (multiply prior sales by 1.10)
Ellis Co.
Seidel Co.
Sales ………………………………….
$264,000
$264,000
Variable expenses ……………..
132,000
198,000
Income before interest ……….
132,000
66,000
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$ 42,000
$ 36,000
Net income increases by …….
40%
20%
4. Sales increase by 40% (multiply prior sales by 1.40)
Ellis Co.
Seidel Co.
Sales ………………………………….
$336,000
$336,000
Variable expenses ……………..
168,000
252,000
Income before interest ……….
168,000
84,000
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$ 78,000
$ 54,000
Net income increases by …….
160%
80%
5. Sales increase by 90% (multiply prior sales by 1.90)
Ellis Co.
Seidel Co.
Sales ………………………………….
$456,000
$456,000
Variable expenses ……………..
228,000
342,000
Income before interest ……….
228,000
114,000
Interest expense (fixed) ………
90,000
30,000
Net income …………………………
$138,000
$ 84,000
Net income increases by …….
360%
180%
Income before interest & taxes
Interest expense
Income before interest & taxes
Interest expense
$120,000
$90,000
$60,000
$30,000
Problem 9-6BA (50 minutes)
June 15
FICA—Social Security Taxes Payable ……………….
992
FICA—Medicare Taxes Payable …………………….….
232
Employee Fed. Income Taxes Payable …………..….
1,050
Cash ……………………………………………………….
2,274
To record payment of FICA & federal income taxes.
30
Office Salaries Expense ………………………………..….
3,800
Shop Salaries Expense …………………………………….
4,200
FICA—Social Security Taxes Payable ………….
496
FICA—Medicare Taxes Payable ……………….….
116
Employee Fed. Income Taxes Payable ……..….
1,050
Salaries Payable ……………………………………..….
6,338
To record payroll for the period.
30
Salaries Payable …………………………………………..….
6,338
Cash ……………………………………………………….
6,338
To record payment of payroll.*
*Check numbers are likely entered in the Payroll Register.
30
Payroll Taxes Expense* …………………………………….
612
FICA⎯Social Security Taxes Payable ………….
496
FICA⎯Medicare Taxes Payable ……………….….
116
To record employer payroll taxes.
*Amount earned through 5/31 = 5 x $1,600 = $8,000
Subject to SUTA/FUTA in June = $0
SUTA = $0
FUTA = $0
FICA⎯Social Security Taxes = $496 (same as employees)
FICA⎯Medicare Taxes = $116 (same as employees)
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Financial Accounting, 7th Edition
40
1.
Gross pay (8 days x $125 per day) ……………………………..
$1,000.00
FICA Social Security tax deduction (6.2%)* ………………...
$ 62.00
FICA Medicare tax deduction (1.45%) ………………………...
14.50
Income tax deduction ………………………………………………..
159.00
Total deductions ……………………………………………………….
235.50
Net Pay ……………………………………………………………………..
$ 764.50
*Employee has not reached the maximum limit.
2. 2014
Feb. 26
Wages Expense ……………………………………………….
1,000.00
FICA—Social Security Taxes Payable ………….
62.00
FICA—Medicare Taxes Payable ……………….….
14.50
Employee Federal Income Taxes Payable ..…..
159.00
Cash ……………………………………………………….
764.50
To record payroll period.
3. 2014
Feb. 26
Payroll Taxes Expense ………………………………….….
122.50
FICA—Social Sec. Taxes Payable …………….….
62.00
FICA—Medicare Taxes Payable ……………….….
14.50
State Unemployment Taxes Payable* ……….….
40.00
Federal Unemployment Taxes Payable** …….….
6.00
To record employer payroll taxes.
* $1,000 x .04 = $40.00
**$1,000 x .006 = $6.00
4. 2014
Mar. 25
Accounts Receivable – Wildcat Services ……….….
2,912
Sales ……………………………………………………….
2,800
Sales Taxes Payable ……………………………….….
112
Sold merchandise on credit and collected
sales tax of 4%.
Mar. 25
Cost of Goods Sold ………………………………………….
2,002
Merchandise Inventory ……………………………….
2,002
To record cost of March 25 sale.