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Excel Skill Problem
P11-35 Using Excel for Payroll
Ankel Footwear employees three salespeople, and pays time-and-a-half for overtime. Weekly paychecks
are distributed on the Tuesday following the last day of the week (Saturday). Ankel withholds income
tax (20%), FICA—OASDI (6.2%), and FICA—Medicare (1.45%). Ankel also pays payroll taxes for
FICA—OASDI (6.2%), FICA—Medicare (1.45%), and state and federal unemployment (5.4% and
0.6% respectively). The payroll data for the three salespeople for the week ended March 31 follows:
Name
Straight
Time
Rate
Hours
Worke
d
Beginning
Cumulative
Earnings
Jimmy
Chew
$ 15 46 $ 420
Manny
Blanik
17 50 540
Alexa King 22 38 480
Requirements
1. Complete the Payroll Register for the three employees for the week ended March 31, 2018.
2. Complete the Payroll Tax Register.
3. Compute the total payroll expense for the week ended March 31.
4. Record the payroll entries Ankel makes for each of the following:
a. Wage expense related to the three employees on Saturday, March 31.
b. Employer payroll taxes related to the three employees.
c. Payment of all payroll taxes (employee and employer related) on April 3.
d. Payment of wages on Tuesday, April 3.
SOLUTION
Continuing Problem
P11-36 Accounting for liabilities of a known amount
This problem continues the Canyon Canoe Company situation from Chapter 10. Amber and Zack
Wilson are continuing their analysis of the company’s position and believe the company will need to
borrow $15,000 in order to expand operations. They consult Rivers Nation Bank and secure a 6%,
one-year note on September 1, 2019, with interest due at maturity. Additionally, the company hires an
employee, John Vance, on September 1. John will receive a salary of $3,000 per month. Payroll
deductions include federal income tax at 25%, OASDI at 6.2%, Medicare at 1.45%, and monthly health
insurance premium of $250. The company will incur matching FICA taxes, FUTA tax at 0.6%, and
SUTA tax at 5.4%. Round calculations to two decimals. Omit explanations on journal entries.
Requirements
1. Record the issuance of the $15,000 note payable on September 1, 2019.
2. Record the employee payroll and employer payroll tax entries on September 30, 2019.
3. Record all payments related to September’s payroll. Payments are made on October 15, 2019.
4. Record the entry to accrue interest due on the note at December 31, 2019.
5. Record the entry Canyon Canoe Company would make to record the payment to the bank on
September 1, 2020.
SOLUTION
Requirements 1-5
Critical Thinking
Tying It All Together Case 11-1
UnitedHealth Group Incorporated is a diversified health and well-being company dedicated to
helping people live healthier lives. The company operates under two distinct platforms: health benefits
(UnitedHealthcare) and health services (Optum).
Requirements
1. What are contingent liabilities?
2. Review Note 13 (Commitments and Contingencies), specifically the section labeled Legal Matters.
Does UnitedHealth Group Incorporated report any contingencies? If so, provide a summary.
3. How should a company handle contingent liabilities that are reasonably possible or probable but
cannot be estimated?
4. Review Note 13 (Commitments and Contingencies), specifically the section labeled California
Claims Processing Matter. How did UnitedHealth Group Incorporated handle the recording of this
contingent liability?
SOLUTION
Decision Case 11-1
Golden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15
work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted
employees. The home office staff consists of an accountant and an office manager.
Because employee turnover is high in the construction industry, supervisors hire and fire their own
crews. Supervisors notify the office of all personnel changes. Also, supervisors forward the employee
W-4 forms to the home office. Each Thursday, the supervisors submit weekly time sheets for their crews,
and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get
paychecks for distribution to the workers at 5 p.m.
The company accountant prepares the payroll, including the paychecks. Beavers signs all
paychecks. To verify that each construction worker is a bona fide employee, the accountant matches the
employee’s endorsement signature on the back of the canceled paycheck with the signature on that
employee’s W-4 form.
Requirements
1. Identify one way that a supervisor can defraud Golden Bear Construction under the present system.
2. Discuss a control feature that the company can use to safeguard against the fraud you identified in
Requirement 1.
SOLUTION
Requirement 1
Decision Case 11-2
Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. Sell-Soft has strong
incentives not to disclose these contingent liabilities. However, GAAP requires that companies report
their contingent liabilities.
Requirements
1. Why would a company prefer not to disclose its contingent liabilities?
2. Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent
liabilities.
3. What ethical tightrope must companies walk when they report contingent liabilities?
SOLUTION
Requirement 1
Ethical Issue 11-1
Many small businesses have to squeeze down costs any way they can just to survive. One way many
businesses do this is by hiring workers as “independent contractors” rather than as regular employees.
Unlike rules for regular employees, a business does not have to pay Social Security (FICA) taxes and
unemployment insurance payments for independent contractors. Similarly, it does not have to withhold
federal, state, or local income taxes or the employee’s share of FICA taxes. The IRS has a “20 factor
test” that determines whether a worker should be considered an employee or a contractor, but many
businesses ignore those rules or interpret them loosely in their favor. When workers are treated as
independent contractors, they do not get a W-2 form at tax time (they get a 1099 instead), they do not
have any income taxes withheld, and they find themselves subject to “self-employment” taxes, by which
they bear the brunt of both the employee’s and the employer’s shares of FICA taxes.
Requirements
1. When a business abuses this issue, how is the independent contractor hurt?
2. If a business takes an aggressive position—that is, interprets the law in a very slanted way—is there
an ethical issue involved? Who is hurt?
SOLUTION
Financial Statement Case 11-1
Details about a company’s liabilities appear in a number of places in the annual report. Visit
Requirements
1. Give the breakdown of Target’s current liabilities at January 30, 2016.
2. Calculate Target’s times-interest-earned ratio for the year ending January 30, 2016. How does
Target’s ratio compare to Kohl’s Corporation’s ratio?
SOLUTION
Communication Activity 11-1
In 150 words or fewer, explain how contingent liabilities are accounted for.
SOLUTION
