9-70
SOLUTIONS TO ANALYZE, THINK, COMMUNICATE
ATC 9-1
All dollar amounts are in millions.
a. The current ratio can be computed from information provided on the
balance sheet:
ATC 9-2
a. (1) Brooks Company
Brooks Company
Computation of Gross Earnings
Employee
Hours Worked
x
Wage Rate
per Hour
=
Gross Pay
No. 1
Reg. 2,000
40
$80,000.00
OT 300
60
18,000.00
Total
2,300
$98,000.00
No. 2
Reg. 2,000
20
$40,000.00
OT 100
30
3,000.00
Total
2,100
$43,000.00
9-72
ATC 9-2 (cont.)
a. (2) Brooks Company
Schedule of Compensation Costs
Salary Costs:
$98,000 + $43,000
$141,000
FICA Soc. Sec. tax expense
($98,000 + $43,000) x 6%
8,460
FICA Medicare tax expense
$141,000 x 1.5%
2,115
Fed. Unemp. tax expense
$14,000 x .6%
84
State Unemp. tax expense
$14,000 x 5.4%
756
Employee Med. Ins. Expense
$500 x 12
6,000
Employee Pension Expense
$100 x 12
1,200
Total Payroll Cost
$159,615
a. (1) Hill Company:
Hill Company
Computation of Gross Earnings
Employee
Hours/Weeks
Worked
x
Wage Rate per
Hour/ Week
=
Gross Pay
No. 1
52
$2,000
$104,000.00
Total
$104,000.00
No. 2
Reg. 2,000
$18
$36,000.00
OT 60
27
1,620.00
Total
2,060
$37,620.00
9-73
ATC 9-2 a. (1) (cont.)
Hill Company
Employee No. 1
Gross Earnings
$104,000.00
Deductions:
Federal Income Tax ($104,000 x 15%)
$15,600.00
FICA Tax − SS ($104,000 x 6%)
6,240.00
FICA Tax − Medicare ($104,000 x 1.5%)
1,560.00
Total Deductions
(23,400.00)
Net Pay
$80,600.00
Employee No. 2
Gross Earnings
$37,620.00
Deductions:
Federal Income Tax ($37,620 x 15%)
$5,643.00
FICA Tax − SS ($37,620 x 6%)
2,257.20
FICA Tax − Medicare ($37,620 x 1.5%)
564.30
Total Deductions
(8,464.50)
Net Pay
$29,155.50
a. (2) Hill Company
Schedule of Compensation Costs
Salary Costs:
$104,000 + $37,620
$141,620.00
FICA Soc. Sec. tax expense
$141,620 x 6%
8,497.20
FICA Medicare tax expense
$141,620 x 1.5%
2,124.30
Fed. Unemp. tax expense
$14,000 x .6%
84.00
State Unemp. tax expense
$14,000 x 5.4%
756.00
Employee Med. Ins. Expense
$650 x 12
7,800.00
Employee Pension Expense
$250 x 12
3,000.00
Total Payroll Cost
$163,881.50
9-74
ATC 9-2 (cont.)
a. (1) Valley Company
Valley Company
Computation of Gross Earnings
Employee
Hours/Months
Worked
x
Wage Rate per
Hour/Month
=
Gross Pay
No. 1
Reg. 12
$10,500.00
$126,000.00
Total
$126,000.00
No. 2
Reg. 860
20
$17,200.00
Total
$17,200.00
Employee No. 1
Gross Earnings
$126,000
Deductions:
Federal Income Tax ($126,000 x 15%)
$18,900
FICA Tax − SS ($110,000 x 6%)
6,600
FICA Tax − Medicare ($126,000 x 1.5%)
1,890
Total Deductions
(27,390)
Net Pay
$98,610
Employee No. 2
Gross Earnings
$17,200
Deductions:
Federal Income Tax ($17,200 x 15%)
$2,580
FICA Tax − SS ($17,200 x 6%)
1,032
FICA Tax − Medicare ($17,200 x 1.5%)
258
Total Deductions
(3,870)
Net Pay
$13,330
9-75
ATC 9-2 (cont.)
a. (2) Valley Company
Schedule of Compensation Costs
Salary Costs:
$126,000 + $17,200
$143,200
FICA Soc. Sec. tax expense
($110,000 + $17,200) x 6%
7,632
FICA Medicare tax expense
$143,200 x 1.5%
2,148
Fed. Unemp. tax expense
$14,000 x .6%
84
State Unemp. tax expense
$14,000 x 5.4%
756
Employee Med. Ins. Expense
$375 x 12
4,500
Employee Pension Expense
$126,000 x 10%
12,600
Total Payroll Cost
$170,920
a (3) & b.
Company
Total Compensation
Costs
Total Salary
Costs
% Salary of
Compensation
Brooks Company
$159,615.00
$141,000
88.34%
Hill Company
$163,881.50
$141,620
86.42%
Valley Company
$170,920.00
$143,200
83.78%
Valley Company has the largest amount of compensation, but its salary
cost is the lowest percent of total compensation costs. This is because it
does it does not pay the 6% FICA Soc. Sec. tax on some of the salaries
(they have reached the maximum taxable) and has higher fringe benefits.
Its pension cost is considerably higher than the other companies even
though it only pays pension cost on one employee. Fringe benefits are a
significant part of total compensation costs.
9-76
ATC 9-3
a. The $373 billion of “noninterest–bearing deposits” on Bank of
America’s (BOA) balance sheet represents the balances in its
customers’ checking accounts. BOA may never have to repay all of
The $1.5 billion of “reclamation and remediation liabilities” on
Newmont’s balance sheet represents the estimated cost of restoring
The $4.1 billion for “air traffic liability costs,” that has been recorded
by Delta Air Lines is an unearned revenue account for money that
Delta has been paid for future flights it has agreed to provide. Delta
9-77
ATC 9-4
a. Current ratios:
2013: $2,295.6 ÷ $1,599.5 = 1.44 to 1.00
2012: $2,271.1 ÷ $1,570.8 = 1.45 to 1.00
9-78
ATC 9-5
a. Current ratios:
ADM: $2,884 ÷ $1,618 = 1.78 to 1.00
Texas Instruments: $8,019 ÷ $2,747 = 2.92 to 1.00
b. Debt to asset ratios:
9-79
ATC 9-6
Nancy has to realize that a significant part of her salary will go to pay her
share of payroll taxes. She will pay federal income tax, social security tax,
Medicare tax and probably state income tax. The FICA taxes (social
security and Medicare taxes) amount to about 7.5% of her salary. The
9-80
ATC 9-7
a. Mr. Putman is not correct in assuming that the amount of payroll tax
is the same for $2,150 as it is for $2,000. When filing the Form 941,
he will report gross salaries of $2,150 and pay the tax of $322.50
$161.25 = $138.75 excess FICA tax). When the W-2 is matched with
the Form 941 and it show no federal income tax withheld, Mr.
Putman would then be billed by the IRS for the excess FICA tax that
is converted to federal income tax withholding, plus penalty and
interest. He would in fact be paying the employee more salary and
9-81
misstating the salary amount. He had the opportunity because he
9-82
ATC 9-7 (cont.)
9-83
ATC 9-8
This solution is based on the company’s From10-K for the fiscal year
ended February 2, 2013, and dollar amounts are in thousands.
a. Pep Boys current assets were $813,637 and its current liabilities
were $ 687,132. Thus, its current ratio was 1.18 to 1.00.
retailer.
9-84
SOLUTIONS TO EXERCISES – SERIES B – CHAPTER 9
EXERCISE 9-1B
2017.)
b. $600 ($60,000 x 6% = $3,600; $3,600 x 2/12= $600)
9–85
EXERCISE 9-2B
a. $4,800 x 6% = $288; $288 x 5/12 = $120
b. $-0-, no interest was paid in 2016; interest will be paid in 2017.
c.
Bell Company
Statements Model for 2016
Balance Sheet
Income Statement
Statement of
Cash Flows
Event
Assets
=
Liabilities
+
Stockholders’ Equity
Rev.
–
Exp.
=
Net Inc.
No.
Cash
=
Notes
Payable
+
Int.
Payable
+
Common
Stock
+
Ret.
Earn.
1.
I
NA
NA
NA
I
I
NA
I
I OA
2.
I
I
NA
NA
NA
NA
NA
NA
I FA
3.
NA
NA
I
NA
D
NA
I
D
NA
EXERCISE 9-3B
a. Book Sales $215,000
Miscellaneous Items Sales 160,000
EXERCISE 9-4B a.
Fast Stop
General Journal
Event
Account Titles
Debit
Credit
1. Nov.
Cash ($85,000 x 1.08)
91,800
Sales Revenue
85,000
Sales Tax Payable
6,800
2. Dec. 10
Sales Tax Payable
6,800
Cash
6,800
3. Dec.
Cash ($98,000 x 1.08)
105,840
Sales Revenue
98,000
Sales Tax Payable
7,840
EXERCISE 9-5B
1. This is a contingent liability. The event occurred. The lawsuit has
been filed, and the “attorney knows that the company will have to
9–89
EXERCISE 9-6B
a.
Event
Account Titles
Debit
Credit
1.
Inventory
150,000
Cash
150,000
2a.
Cash
280,000
Sales Revenue
280,000
2b.
Cost of Goods Sold
150,000
Inventory
150,000
3.
Warranty Expense ($280,000 x 5%)
14,000
Warranties Payable
14,000
4.
Warranties Payable
1,545
Cash
1,545
b.
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Warranties Payable
Sales Revenue
2a. 280,000
1. 150,000
4. 1,545
3. 14,000
2a. 280,000
4. 1,545
Bal. 12,455
Bal. 128,455
Cost of Goods Sold
2b. 150,000
Mdse. Inventory
1. 150,000
2b. 150,000
Warranty Expense
Bal. -0-
3. 14,000