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S11-9 Computing bonus payable
Learning Objective 3
On December 31, Weston Company estimates that it will pay its employees a 5% bonus on net
income after deducting the bonus. The company reports net income of $64,000 before the
calculation of the bonus. The bonus will be paid on January 15 of the next year.
Requirements
1. Journalize the December 31 transaction for Weston.
2. Journalize the payment of the bonus on January 15.
SOLUTION
S11-10 Journalizing vacation benefits
Learning Objective 3
Samuel Industries has three employees. Each employee earns two vacation days a month.
Samuel pays each employee a weekly salary of $1,250 for a five-day workweek.
Requirements
1. Determine the amount of vacation expense for one month.
2. Journalize the entry to accrue the vacation expense for the month.
SOLUTION
S11-11 Accounting for warranty expense and warranty payable
Learning Objective 3
Trail Runner guarantees its snowmobiles for three years. Company experience indicates that
warranty costs will be approximately 5% of sales.
Assume that the Trail Runner dealer in Colorado Springs made sales totaling $600,000 during
2018. The company received cash for 20% of the sales and notes receivable for the remainder.
Warranty payments totaled $10,000 during 2018.
Requirements
1. Record the sales, warranty expense, and warranty payments for the company. Ignore cost of
goods sold.
2. Assume the Estimated Warranty Payable is $0 on January 1, 2018. Post the 2018 transactions
to the Estimated Warranty Payable T-account. At the end of 2018, how much in Estimated
Warranty Payable does the company owe?
SOLUTION
S11-12 Accounting treatment for contingencies
Learning Objective 4
Freeman Motors, a motorcycle manufacturer, had the following contingencies.
a. Freeman estimates that it is reasonably possible but not likely that it will lose a current
lawsuit. Freeman’s attorneys estimate the potential loss will be $4,500,000.
b. Freeman received notice that it was being sued. Freeman considers this lawsuit to be
frivolous.
c. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose
the lawsuit and estimates the damages to be paid will be $75,000.
Determine the appropriate accounting treatment for each of the situations Freeman is facing.
SOLUTION
S11-13 Computing times-interest-earned ratio
Learning Objective 5
Abernathy Electronics reported the following amounts on its 2018 income statement:
Year Ended December 31, 2018
Net income $ 45,000
Income tax expense 6,750
Interest expense 3,750
What is Abernathy’s times-interest-earned ratio for 2018? (Round to two decimals.)
SOLUTION
Exercises
E11-14 Recording sales tax
Learning Objective 1
Sales Tax Payable $16,100
Consider the following transactions of Sapphire Software:
Mar. 31 Recorded cash sales of $230,000, plus sales tax of 7% collected for the
state of New Jersey.
Apr. 6 Sent March sales tax to the state.
Journalize the transactions for the company. Ignore cost of goods sold.
SOLUTION
E11-15 Recording note payable transactions
Learning Objective 1
Aug. 1, 2018 Interest Expense $840
Consider the following note payable transactions of Creative Video Productions.
2017
Aug. 1 Purchased equipment costing $16,000 by issuing a one-year, 9% note
payable.
Dec. 31 Accrued interest on the note payable.
2018
Aug. 1 Paid the note payable plus interest at maturity.
Journalize the transactions for the company.
SOLUTION
E11-16 Recording and reporting current liabilities
Learning Objective 1
Dec. 31 Subscription Revenue $80
Watson Publishing completed the following transactions during 2018:
Oct. 1 Sold a six-month subscription (starting on November 1), collecting cash of
$240, plus sales tax of 8%.
Nov.
15
Remitted (paid) the sales tax to the state of Tennessee.
Dec.
31
Made the necessary adjustment at year-end to record the amount of
subscription revenue earned during the year.
Journalize the transactions (explanations are not required). Round to the nearest dollar.
SOLUTION
E11-17 Journalizing current liabilities
Learning Objectives 1, 2
Salaries Expense $3,400
Erin O’Neil Associates reported short-term notes payable and salaries payable as follows:
2018 2017
Current Liabilities—partial:
Short-term Notes Payable $ 16,900 $ 16,000
Salaries Payable 3,400 4,000
During 2018, O’Neil paid off both current liabilities that were left over from 2017, borrowed
cash on short-term notes payable, and accrued salaries expense. Journalize all four of these
transactions for O’Neil during 2018. Assume no interest on short-term notes payable of $16,000.
SOLUTION
E11-18 Computing and recording gross and net pay
Learning Objective 2
1. Net Pay $576.69
Hugh Stanley manages a Dairy House drive-in. His straight-time pay is $12 per hour, with
time-and-a-half for hours in excess of 40 per week. Stanley’s payroll deductions include withheld
income tax of 20%, FICA tax, and a weekly deduction of $5 for a charitable contribution to
United Way. Stanley worked 58 hours during the week.
Requirements
1. Compute Stanley’s gross pay and net pay for the week. Assume earnings to date are $18,000.
2. Journalize Dairy Houses wages expense accrual for Stanley’s work. An explanation is not
required.
3. Journalize the subsequent payment of wages to Stanley.
SOLUTION
E11-18, cont.
Requirement 2
E11-19 Recording employer payroll taxes and employee benefits
Learning Objective 2
1. Payroll Tax Expense $6,063.00
Ricardo’s Mexican Restaurant incurred salaries expense of $62,000 for 2018. The payroll
expense includes employer FICA tax, in addition to state unemployment tax and federal
unemployment tax. Of the total salaries, $22,000 is subject to unemployment tax. Also, the
company provides the following benefits for employees: health insurance (cost to the company,
$3,000), life insurance (cost to the company, $330), and retirement benefits (cost to the company,
10% of salaries expense).
Requirements
1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are
not required.
2. What was Ricardo’s total expense for 2018 related to payroll?
SOLUTION
Requirement 1
