CHAPTER 11 Current Liabilities and Payroll
Prob. 11–3A
1. Gross Federal Income Social Security Medicare
Earnings Tax Withheld Tax Withheld Tax Withheld
Arnett………
…
$ 8,250.00 $ 1,416.00 $ 495.00 $ 123.75
Cruz…………
…
57,600.00 9,996.00 3,456.00 864.00
Edwards……
…
24,000.00 4,776.00 1,440.00 360.00
2. a. Social security tax paid by employer…………………………………
…
$19,780.80
c. Earnings subject to unemployment compensation tax,
$10,000 for all employees except Arnett, Harvin, and Ward.
Thus, total earnings subject to SUTA and FUTA are
…
Employee
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–4A
1.
Social Federal U.S. Sales Office
Total Security Medicare Income Savings Net Ck. Salaries Salaries
Employee Hours Regular Overtime Total Tax Tax Tax Bonds Total Pay No. Expense Expense
Aaron 46 2,720.00 612.00 3,332.00 199.92 49.98 750.20 100.00 1,100.10 2,231.90 901 3,332.00
Cobb 41 2,480.00 93.00 2,573.00 154.38 38.60 537.68 110.00 840.66 1,732.34 902 2,573.00
Clemente 48 2,800.00 840.00 3,640.00 218.40 54.60 832.64 120.00 1,225.64 2,414.36 903 3,640.00
2. Sales Salaries Expense 19,060.00
Office Salaries Expense 3,800.00
Social Security Tax Payable 1,371.60
PAYROLL FOR WEEK ENDING December 9, 2016
EARNINGS DEDUCTIONS PAID ACCOUNT DEBITED
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–5A
1. Dec. 2 Bond Deductions Payable 3,400
Cash 3,400
2 Social Security Tax Payable 9,273
Medicare Tax Payable 2,318
Employees Federal Income Tax Payable 15,455
Cash 27,046
13 Salaries Payable 46,296
Cash 46,296
13 Payroll Tax Expense 6,265
Social Security Tax Payable 4,632
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–5A (Concluded)
Dec. 27 Operations Salaries Expense 42,800
Officers Salaries Expense 28,000
Office Salaries Expense 7,000
Social Security Tax Payable 4,668
Medicare Tax Payable 1,167
27 Payroll Tax Expense 6,135
Social Security Tax Payable 4,668
Medicare Tax Payable 1,167
State Unemployment Tax Payable 225
Federal Unemployment Tax Payable 75
2. a. Dec. 31 Operations Salaries Expense 8,560
Officers Salaries Expense 5,600
Office Salaries Expense 1,400
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–1B
1. Apr. 15 Cash 225,000
Notes Payable 225,000
May 1 Equipment 310,400
July 14 Notes Payable 225,000
Interest Expense ($225,000 × 60 ÷ 360 × 8%) 3,000
Cash 228,000
Aug. 16 Merchandise Inventory 90,000
Accounts Payable—Exige Co. 90,000
Sept. 15 Accounts Payable—Exige Co. 90,000
Notes Payable 90,000
Oct. 28 Notes Payable 320,000
Cash 320,000
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–1B (Concluded)
2. a. Product Warranty Expense 26,800
Product Warranty Payable 26,800
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–2B
1. a. Dec. 30 Sales Salaries Expense 625,000
Warehouse Salaries Expense 240,000
Office Salaries Expense 320,000
Employees Income Tax Payable 232,260
Social Security Tax Payable 71,100
Medicare Tax Payable 17,775
U.S. Savings Bond Deductions Payable 35,500
2. a. Dec. 30 Sales Salaries Expense 625,000
Warehouse Salaries Expense 240,000
Office Salaries Expense 320,000
Employees Income Tax Payable 232,260
Social Security Tax Payable171,100
b. Jan. 4 Payroll Tax Expense 162,345
Social Security Tax Payable 71,100
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–3B
1. Gross Federal Income Social Security Medicare
Earnings* Tax Withheld Tax Withheld Tax Withheld
Addai………………
…
$44,880 $ 9,372 $ 2,692.80 $ 673.20
Kasay………………
…
25,200 3,731 1,512.00 378.00
McGahee…………
…
67,410 12,999 4,044.60 1,011.15
2. a. Social security tax paid by employer……………………………… $17,163.90
b. Medicare tax paid by employer……………………………………
…
4,290.98
c. Earnings subject to unemployment compensation tax,
$10,000 for all employees except Stewart and Tolbert.
Employee
…
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–4B
1.
Social Federal U.S. Sales Office
Total Security Medicare Income Savings Net Ck. Salaries Salaries
Employee Hours Regular Overtime Total Tax Tax Tax Bonds Total Pay No. Expense Expense
Carlton 52 2,000.00 900.00 2,900.00 174.00 43.50 667.00 60.00 944.50 1,955.50 328 2,900.00
Grove 4,000.00 240.00 60.00 860.00 100.00 1,260.00 2,740.00 329 4,000.00
Johnson 36 1,872.00 1,872.00 112.32 28.08 355.68 496.08 1,375.92 330 1,872.00
Koufax 45 2,320.00 435.00 2,755.00 165.30 41.33 578.55 44.00 829.18 1,925.82 331 2,755.00
2. Sales Salaries Expense 16,743.00
Office Salaries Expense 7,200.00
Social Security Tax Payable 1,436.58
PAYROLL FOR WEEK ENDING December 9, 2016
EARNINGS DEDUCTIONS PAID ACCOUNT DEBITED
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–5B
1. Dec. 1 Medical Insurance Payable 2,520
Cash 2,520
2 Bond Deductions Payable 2,300
Cash 2,300
12 Sales Salaries Expense 14,500
Officers Salaries Expense 7,100
12 Salaries Payable 15,418
Cash 15,418
12 Payroll Tax Expense 2,220
Social Security Tax Payable 1,452
Medicare Tax Payable 363
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–5B (Concluded)
Dec. 26 Sales Salaries Expense 14,250
Officers Salaries Expense 7,250
Office Salaries Expense 2,750
Social Security Tax Payable 1,455
26 Salaries Payable 15,873
Cash 15,873
26 Payroll Tax Expense 2,009
Social Security Tax Payable 1,455
30 Employees State Income Tax Payable 6,258
Cash 6,258
30 Bond Deductions Payable 2,300
Cash 2,300
2. Dec. 31 Sales Salaries Expense 4,275
Officers Salaries Expense 2,175
Office Salaries Expense 825
CHAPTER 11 Current Liabilities and Payroll
1. Jan. 3 Petty Cash 4,500
Cash 4,500
Feb. 26 Office Supplies 1,680
Apr. 14 Merchandise Inventory 31,300
Accounts Payable 31,300
May 13 Accounts Payable 31,300
Cash 31,300
17 Cash 21,200
Aug. 1 Cash 182,400
Notes Receivable 180,000
Interest Revenue 2,400
($180,000 × 8% × 60 ÷ 360 = $2,400).
COMPREHENSIVE PROBLEM 3
CHAPTER 11 Current Liabilities and Payroll
Comp. Prob. 3 (Continued)
Sept. 15 Land 654,925
Interest Expense 15,075
Notes Payable 670,000
($670,000 × 90 ÷ 360 × 9%).
30 Payroll Tax Expense 16,229
Social Security Tax Payable 12,735
Medicare Tax Payable 3,184
State Unemployment Tax Payable* 270
Federal Unemployment Tax Payable** 40
CHAPTER 11 Current Liabilities and Payroll
Comp. Prob. 3 (Continued)
2.
Balance according to bank statement $283,000
Add deposit in transit, not recorded by bank 29,500
$312,500
Deduct outstanding checks 68,540
3. Miscellaneous Expense 750
4. a. Bad Debt Expense 18,000
Allowance for Doubtful Accounts 18,000
To record estimated uncollectible accounts,
$16,000 + $2,000.
b. Cost of Merchandise Sold 3,300
KORNETT COMPANY
Bank Reconciliation
December 31, 2016
CHAPTER 11 Current Liabilities and Payroll
Comp. Prob. 3 (Continued)
e. Depreciation Expense—Buildings 36,000
Depreciation Expense—Office Equipment 44,000
Depreciation Expense—Store Equipment 5,000
Computations:
Buildings ($900,000 × 4.0%)………………… $36,000
f. Amortization Expense—Patents 6,000
Patents 6,000
To record patent amortization,
$48,000 ÷ 8 years.
g. Depletion Expense 30,000
Accumulated Depletion 30,000
To record depletion,
($546,000 ÷ 910,000 tons) × 50,000 tons.
CHAPTER 11 Current Liabilities and Payroll
Comp. Prob. 3 (Continued)
5.
Current assets:
Petty cash $ 4,500
Cash 243,960
Notes receivable 100,000
Accounts receivable $470,000
Property, plant, and equipment:
Land $654,925
Buildings $900,000
Less accumulated depreciation 36,000 864,000
Office equipment $246,000
Less accumulated depreciation 44,000 202,000
KORNETT COMPANY
Balance Sheet
December 31, 2016
Assets
CHAPTER 11 Current Liabilities and Payroll
Comp. Prob. 3 (Concluded)
Current liabilities:
Social security tax payable $ 25,470
Medicare tax payable 4,710
Employees federal income tax payable 40,000
Product warranty payable 76,000
Vacation pay payable (current portion) 7,140
Notes payable (current portion) 70,000
Total current liabilities $ 540,230
Long-term liabilities:
Vacation pay payable $ 3,360
Liabilities
CHAPTER 11 Current Liabilities and Payroll
CP 11–1
The firm has no implicit or explicit contract to pay any bonus. The bonus is discretionary,
even if the firm paid a two-week bonus for 10 straight years. The firm is not behaving
unethically for reducing the bonus to one week—regardless of the reason. Tonya Latirno,
on the other hand, has taken things into her own hands. Sensing that she is being
cheated, she tries to rectify the situation to her own advantage by working overtime that
CP 11–2
Sumana’s interpretation of the pension issue is correct. The employee earns the pension
during the working years. The pension is part of the employee’s compensation that is
deferred until retirement. Thus, Felton should record an expense equal to the amount of
pension benefit earned by the employee for the period. This gives rise to the rather
CASES & PROJECTS
CHAPTER 11 Current Liabilities and Payroll
CP 11–3
a. The so-called “underground economy” hides transactions from IRS scrutiny by
conducting business with cash (not check or credit card, which leaves an audit
trail). The intent in many such transactions is to evade income tax illegally. However,
just because a transaction is in cash does not exempt it from taxation. Tina Song
b. Marvin should respond that he would rather receive a payroll check as a normal
employee does. Receiving cash as an employee, rather than a payroll check,
subverts the U.S. tax system. That is, such cash payments do not include
CP 11–4
The purpose of this activity is to familiarize students with retrieving and using IRS forms
Students should be able to find the three required forms without much difficulty.
Encourage students to retrieve the forms from the IRS Web site because this is a useful
source for any IRS form or publication that they might need. IRS Web site forms come in
.pdf format, which means Adobe Acrobat Reader or similar software is necessary to
open and print the file. PDF reader software is available as free plug-ins for most
Internet browsers. However, some students may need to download a full free version in
CP 11–5
This activity does not require the student to research the contingency notes for Altria
Group. The contingency disclosure is extensive and complicated. Rather, the student
should identify Altria Group’s main business, and from this information determine the
likely cause of the contingency disclosures.
a. Altria Group is a holding company for a number of businesses including Philip
Morris. Thus, Altria’s primary business is in the manufacture and distribution of
tobacco products.