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P11-31B Computing and journalizing payroll amounts
Learning Objective 2
1. Net Pay $128,360
Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the
company all year at a $13,400 monthly salary. He also earned a year-end bonus equal to 5% of
his annual salary.
Wallace’s federal income tax withheld during 2018 was $2,010 per month, plus $1,608 on his
bonus check. State income tax withheld came to $110 per month, plus $80 on the bonus. FICA
tax was withheld on the annual earnings. Wallace authorized the following payroll deductions:
Charity Fund contribution of 2% of total earnings and life insurance of $15 per month.
Moonwalk incurred payroll tax expense on Wallace for FICA tax. The company also paid
state unemployment tax and federal unemployment tax.
Requirements
1. Compute Wallace’s gross pay, payroll deductions, and net pay for the full year 2018. Round
all amounts to the nearest dollar.
2. Compute Moonwalk’s total 2018 payroll tax expense for Wallace.
3. Make the journal entry to record Moonwalk’s expense for Wallace’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 Moonwalk’s payroll tax expense for Wallace’s
total earnings.
5. Make the journal entry for the payment of the payroll withholdings and taxes.
P11-31B, cont.
SOLUTION
Requirement 1
Requirement 2
P11-31B, cont.
Requirement 3
Requirement 4
Requirement 5
P11-32B Journalizing liability transactions
Learning Objectives 1, 3
Jan. 29 Cash $18,020
The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:
2017
Jan. 9 Purchased computer equipment at a cost of $7,000, signing a six-month, 8%
note payable for that amount.
29 Recorded the week’s sales of $68,000, 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, 8% note, plus interest, at maturity.
Aug.
31
Purchased merchandise inventory for $3,000, signing a six-month, 10%
note payable. The company uses a perpetual inventory system.
Dec.
31
Accrued warranty expense, which is estimated at 2% 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 Philadelphia’s general journal. Explanations are not required.
P11-32B, cont.
SOLUTION
P11-33B Journalizing liability transactions
Learning Objectives 3, 4
1. June 30 Warranty Expense $11,700
The following transactions of Belkin Howe occurred during 2018:
Apr. 30 Howe is party to a patent infringement lawsuit of $230,000. Howe’s
attorney is certain it is remote that Howe will lose this lawsuit.
Jun. 30 Estimated warranty expense at 3% of sales of $390,000.
Jul. 28 Warranty claims paid in the amount of $6,300.
Sep. 30 Howe is party to a lawsuit for copyright violation of $90,000. Howe’s
attorney advises that it is probable Howe will lose this lawsuit. The
attorney estimates the loss at $90,000.
Dec. 31 Howe estimated warranty expense on sales for the second half of the
year of $520,000 at 3%.
Requirements
1. Journalize required transactions, if any, in Howe’s general journal. Explanations are not
required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?
P11-33B, cont.
SOLUTION
Requirement 1
Requirement 2
P11-34B Computing times-interest-earned ratio
Learning Objective 5
1. Net Income $9,620
The income statement for Vermont Communications follows. Assume Vermont Communications
signed a 3-month, 3%, $6,000 note on June 1, 2018, and that this was the only note payable for
the company.
Requirements
1. Fill in the missing information for Vermont’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.
P11-34B, cont.
SOLUTION
Requirement 2
