Accounting Chapter 11 Homework Beavers Can Ask Other Workers The Absent person

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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

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