P11-26A Computing and journalizing payroll amounts
Learning Objective 2
1. Net Pay $152,199
Logan White is general manager of Valuepoint Salons. During 2018, White worked for the
company all year at a $13,600 monthly salary. He also earned a year-end bonus equal to 15% of
his annual salary.
White’s federal income tax withheld during 2018 was $1,360 per month, plus $4,876 on his
bonus check. State income tax withheld came to $150 per month, plus $60 on the bonus. FICA
tax was withheld on the annual earnings. White authorized the following payroll deductions:
Charity Fund contribution of 1% of total earnings and life insurance of $40 per month.
Valuepoint incurred payroll tax expense on White for FICA tax. The company also paid state
unemployment tax and federal unemployment tax.
Requirements
1. Compute White’s gross pay, payroll deductions, and net pay for the full year 2018. Round all
amounts to the nearest dollar.
2. Compute Valuepoint’s total 2018 payroll tax expense for White.
3. Make the journal entry to record Valuepoint’s expense for White’s total earnings for the year,
his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as
appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An
explanation is not required.
4. Make the journal entry to record the accrual of Valuepoint’s payroll tax expense for White’s
total earnings.
5. Make the journal entry for the payment of the payroll withholdings and taxes.
P11-26A, cont.
SOLUTION
Requirement 2
P11-26A, cont.
Requirement 3
Requirement 4
Requirement 5
P11-27A Journalizing liability transactions
Learning Objectives 1, 3
Jan. 29 Cash $16,695
The following transactions of Plymouth Pharmacies occurred during 2017 and 2018:
2017
Jan. 9 Purchased computer equipment at a cost of $12,000, signing a six-month,
9% note payable for that amount.
29 Recorded the week’s sales of $63,000, three-fourths on credit and
one-fourth for cash. Sales amounts are subject to a 6% state sales tax.
Ignore cost of goods sold.
Feb. 5 Sent the last week’s sales tax to the state.
Jul. 9 Paid the six-month, 9% note, plus interest, at maturity.
Aug.
31
Purchased merchandise inventory for $9,000, signing a six-month, 10%
note payable. The company uses the perpetual inventory system.
Dec.
31
Accrued warranty expense, which is estimated at 4% of sales of $609,000.
31 Accrued interest on all outstanding notes payable.
2018
Feb. 28 Paid the six-month 10% note, plus interest, at maturity.
Journalize the transactions in Plymouth’s general journal. Explanations are not required.
Round to the nearest dollar.
P11-27A, cont.
SOLUTION
P11-28A Journalizing liability transactions
Learning Objectives 3, 4
1. June 30 Warranty Expense $7,000
The following transactions of Jasmine Reef occurred during 2018:
Apr. 30 Reef is party to a patent infringement lawsuit of $190,000. Reef’s attorney
is certain it is remote that Reef will lose this lawsuit.
Jun. 30 Estimated warranty expense at 2% of sales of $350,000.
Jul. 28 Warranty claims paid in the amount of $5,500.
Sep. 30 Reef is party to a lawsuit for copyright violation of $80,000. Reef’s attorney
advises that it is probable Reef will lose this lawsuit. The attorney estimates
the loss at $80,000.
Dec. 31 Reef estimated warranty expense on sales for the second half of the year of
$510,000 at 2%.
Requirements
1. Journalize required transactions, if any, in Reef’s general journal. Explanations are not
required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?
P11-28A, cont.
SOLUTION
Requirement 1
Requirement 2
P11-29A Computing times-interest-earned ratio
Learning Objective 5
1. Net Income $4,305
The income statement for California Communications follows. Assume California
Communications signed a 3-month, 9%, $3,000 note on June 1, 2018, and that this was the only
note payable for the company.
Requirements
1. Fill in the missing information for California’s year ended July 31, 2018, income statement.
Round to the nearest dollar.
2. Compute the times-interest-earned ratio for the company. Round to two decimals.
P11-29A, cont.
SOLUTION
Requirement 1
Requirement 2
Problems (Group B)
P11-30B Journalizing and posting liabilities
Learning Objectives 1, 2
1d. Rent Revenue $2,250
The general ledger of Prompt 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 $ 118,000
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 5,400
Long-term Notes Payable 198,000
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 $39,600, with the next
installment due on July 31. On that date, Prompt Ship will also pay one year’s interest at
10%. 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 $4,800. Assume that
employee income taxes withheld are $920 and that all earnings are subject to OASDI.
c. Record the associated employer taxes payable for the last payroll of the fiscal year,
$4,800. Assume that the earnings are not subject to unemployment compensation taxes.
d. On February 1, the company collected one year’s rent of $5,400 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.
P11-30B, cont.
SOLUTION
Requirements 1 and 2
P11-30B, cont.
Requirements 1 and 2, cont.
P11-30B, cont.
Requirement 3