E11-20 Recording employee and employer payroll taxes
Learning Objective 2
2. Salaries & Wages Payable $15,923.20
County Company had the following partially completed payroll register:
Earnings Withholdings
Net
Pay
Check
No.
Salaries
and Wages
Expense
Beginning
Cumulative
Earnings
Current
Period
Earnings
Ending
Cumulative
Earnings
OASD
I Medicare
Income
Tax
Health
Insurance
United
Way
Total
Withholdings
$ 77,000 $ 4,500 $ 900 $ 90 $ 15 801
112,000 7,200 1,200 144 35 802
48,000 3,300 600 66 0 803
61,000 3,300 850 66 20 804
0 4,500 1,100 90 0 805
$ 298,000 $ 22,800 $ 4,650 $ 456 $ 70
5. Journalize the payment for withholdings and employer payroll taxes.
Requirements
1. Complete the payroll register. Round to two decimals.
2. Journalize County Company’s salaries and wages expense accrual for the current pay period.
3. Journalize County Company’s expenses for employer payroll taxes for the current pay period.
4. Journalize the payment to employees.
SOLUTION
E11-20, cont.
Requirement 2
E11-20, cont.
Requirement 4
Requirement 5
E11-21 Accounting for warranty expense and warranty payable
Learning Objective 3
1. Warranty Expense $10,170
The accounting records of Sculpted Ceramics included the following at January 1, 2018:
In the past, Sculpted’s warranty expense has been 9% of sales. During 2018, Sculpted made
sales of $113,000 and paid $7,000 to satisfy warranty claims.
Requirements
1. Journalize Sculpted’s warranty expense and warranty payments during 2018.
Explanations are not required.
2. What balance of Estimated Warranty Payable will Sculpted report on its balance sheet at
December 31, 2018?
SOLUTION
Requirement 1
E11-22 Accounting for warranties, vacation, and bonuses
Learning Objective 3
Dec. 31 Employee Bonus Expense $1,515
McNight Industries completed the following transactions during 2018:
Nov. 1 Made sales of $52,000. McNight estimates that warranty expense is 6%
of sales. (Record only the warranty expense.)
20 Paid $1,600 to satisfy warranty claims.
Dec. 31 Estimated vacation benefits expense to be $6,000.
31 McNight expected to pay its employees a 3% bonus on net income after
deducting the bonus. Net income for the year is $52,000.
Journalize the transactions. Explanations are not required. Round to the nearest dollar.
SOLUTION
E11-23 Accounting treatment for contingencies
Learning Objective 4
Analyze the following independent situations.
a. Weaver, Inc. is being sued by a former employee. Weaver believes that there is a remote
chance that the employee will win. The employee is suing Weaver for damages of $40,000.
b. Gulf Oil Refinery had a gas explosion on one of its oil rigs. Gulf believes it is likely that it
will have to pay environmental clean-up costs and damages in the future due to the gas
explosion. Gulf cannot estimate the amount of the damages.
c. Lawson Enterprises estimates that it will have to pay $75,000 in warranty repairs next year.
Determine how each contingency should be treated.
SOLUTION
E11-24 Computing times-interest-earned ratio
Learning Objective 5
1. Cash Ratio 118.80 times
The following financial information was obtained from the year ended 2018 income
statements for Cash Automotive and Pennington Automotive:
Cash Pennington
Net income $
26,070
$ 74,188
Income tax expense 9,270 27,080
Interest expense 300 2,900
Requirements
1. Compute the times-interest-earned ratio for each company. Round to two decimals.
2. Which company was better able to cover its interest expense?
SOLUTION
Requirement 2
Cash is better able to cover its interest expense.
Problems (Group A)
P11-25A Journalizing and posting liabilities
Learning Objectives 1, 2
1d. Rent Revenue $3,000
The general ledger of Seal-N-Ship at June 30, 2018, the end of the company’s fiscal year,
includes the following account balances before payroll and adjusting entries.
Accounts Payable $
114,000
Interest Payable 0
Salaries Payable 0
Employee Income Taxes Payable 0
FICA—OASDI Taxes Payable 0
FICA—Medicare Taxes Payable 0
Federal Unemployment Taxes
Payable
0
State Unemployment Taxes
Payable
0
Unearned Rent Revenue 7,200
Long-term Notes Payable 210,000
The additional data needed to develop the payroll and adjusting entries at June 30 are as
follows:
a. The long-term debt is payable in annual installments of $42,000, with the next
installment due on July 31. On that date, Seal-N-Ship will also pay one year’s interest at
9%. Interest was paid on July 31 of the preceding year. Make the adjusting entry to
accrue interest expense at year-end.
b. Gross unpaid salaries for the last payroll of the fiscal year were $4,700. Assume that
employee income taxes withheld are $910 and that all earnings are subject to OASDI.
c. Record the associated employer taxes payable for the last payroll of the fiscal year,
$4,700. Assume that the earnings are not subject to unemployment compensation taxes
d. On February 1, the company collected one year’s rent of $7,200 in advance.
Requirements
1. Using T-accounts, open the listed accounts and insert the unadjusted June 30 balances.
2. Journalize and post the June 30 payroll and adjusting entries to the accounts that you
opened. Identify each adjusting entry by letter. Round to the nearest dollar.
3. Prepare the current liabilities section of the balance sheet at June 30, 2018.
SOLUTION
Requirements 1 and 2
P11-25A, cont.
Requirement 3
