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COMPREHENSIVE PROBLEM SOLUTION (Continued)
MORGAN COMPANY
Balance Sheet
January 31, 2017
Current Assets
Cash .....................................................
$221,350
Inventory .............................................
26,850
Current Liabilities
Accounts payable ...............................
$ 44,850
Salaries and wages payable ..............
46,510
Sales taxes payable ............................
11,600
FICA taxes payable .............................
9,180
Federal income taxes payable ...........
8,900
Long-term liabilities
Notes payable .....................................
50,000
Total liabilities ...............................
175,010
BYP 11-1 FINANCIAL REPORTING PROBLEM
(a) Total current liabilities at September 28, 2013, $43,658 million. Apple’s
total current liabilities increased by $5,116 ($43,658 – $38,542) million
over the prior year.
(b) In Note 2 under the subheading “Commitments and Contingencies,”
Apple states: “We recognize liabilities for contingencies and com-
BYP 11-2 COMPARATIVE ANALYSIS PROBLEM
(a) PepsiCo’s largest current liability was “accounts payable and other current
liabilities” at $12,533 million. Its total current liabilities were $17,839 million.
(b)
(in millions)
PepsiCo
Coca-Cola
(1)
Working capital
$22,203 – $17,839 = $4,364
$31,304 – $27,811 = $3,493
BYP 11-3 COMPARATIVE ANALYSIS PROBLEM
(a) Amazon’s largest current liability was “accounts payable” at $15,133
million. Its total current liabilities were $22,980 million. Wal-Mart’s largest
current liability was also “accounts payable” at $37,415 million. Its total
current liabilities were $69,345 million.
(b)
(in millions)
Amazon
Wal-Mart
(1)
Working capital
$24,625 – $22,980 = $1,645
$61,185 – $69,345 = ($8,160)
BYP 11-4 REAL-WORLD FOCUS
(a) A worker who performs services for you is your employee if you can
control what will be done and how it will be done. This is so even when
you give the employee freedom of action. What matters is that you have
the right to control the details of how the services are performed. See Pub.
15-A, Employer’s Supplemental Tax Guide, for more information on how
to determine whether an individual providing services is an independent
contractor or an employee.
(b) Payments for the services of a child under the age of 18 who works for his
or her parent in a trade or business (sole proprietorship or a partnership
in which each partner is a parent of the child) are not subject to social
security and Medicare taxes. If these services are for work other than
in a trade or business, such as domestic work in the parent’s private
home, they are not subject to social security and Medicare taxes until
the child reaches 21.
BYP 11-4 (Continued)
(e) In general, you must deposit federal income tax withheld and both the
employer and employee social security and Medicare taxes (minus any
advance EIC payments). You must deposit by using the Electronic
BYP 11-5 DECISION MAKING ACROSS THE ORGANIZATION
(a) BANISTER SERVICES INC.
Months
Number of
Employees
Days
Worked
Daily
Rate
Cost
January–March
April–May
2
3
60 (20 X 3)
50 (25 X 2)
$80
80
$ 9,600
12,000
PERMANENT EMPLOYEES
Salaries ($22,000 X 2) .............................................. $44,000
Additional payroll costs
FICA taxes (7.65% X $44,000) .......................... $3,366
Cunningham Processing Company would save $2,154 ($49,194 – $47,040),
(b) Carol should consider the following additional factors:
(1) The effect on the morale of the continuing employees if two employees
are terminated.
BYP 11-6 COMMUNICATION ACTIVITY
Dear Mr. Falcon:
In response to your request, I wish to explain the types of taxes that are
involved in determining the payroll and in recording and paying employer
payroll taxes.
The taxes that are involved in determining the payroll are as follows:
1. FICA taxes. These taxes were enacted by Congress to provide workers
with supplemental retirement, employment disability, and medical benefits.
2. Federal income taxes. Employers are required to withhold federal in-
come taxes from employees each pay period. The amount depends
3. State and city income taxes. Where applicable, these income taxes are
similar to federal income taxes.
There are three types of payroll taxes that are levied on employers that are
recognized as payroll tax expense by the employer.
BYP 11-6 (Continued)
2. Federal unemployment taxes. These taxes provide benefits to employees
who lose their jobs through no fault of their own. The tax is 6.2% on the
first $7,000 of gross earnings paid to each employee during a calendar
year. The employer is allowed a maximum credit of 5.4% on the federal
rate for contributions to state unemployment taxes.
BYP 11-7 ETHICS CASE
(a) The stakeholders in this situation are:
(b) Not withholding federal and state taxes from employees’ payroll is
both illegal and unethical. Also, not paying FICA taxes, and state and
federal unemployment taxes, is illegal and unethical.
(c) Anne Farr, as Robert’s public accountant, should not be an accomplice to
improper payroll deductions and accounting. Anne should constantly
(d) An important internal control principle is to make no payments from
cash receipts. All cash receipts should be deposited daily intact in the
bank and all disbursements should be made by properly authorized
and signed checks.
BYP 11-8 ALL ABOUT YOU
The answer to these questions depends on the state in which the student
resides. It also will be depend on the year chosen, although we expect that
the results will be much the same whether they pick any rates between
2012 and 2014. We provide a solution for this problem using the state of
Wisconsin as an example. It should be pointed out that certain taxes can
be deducted for computing federal income tax but are ignored in our
computation.
(a) Wisconsin state income taxes for a single person with a taxable income
of $60,000 is $3,701. The tax rate between $17,680 and $132,580 is $950.30
plus 6.5 percent over $17,680. Therefore the computation is as follows:
(b) The property tax on a $200,000 home at 2.1% is $4,200.
(c) The state gasoline tax in Wisconsin is 32.9 cents per gallon and the federal
gasoline tax is 18.4 cents per gallon. Your total taxes on gasoline are
computed as follows:
(f) Federal income taxes for a single person with a taxable income of $60,000
is $11,030. The tax rate between $35,350 and $85,650 is $4,867 plus
25% over $35,350. Therefore the computation is as follows:
BYP 11-8 (Continued)
(g) The total taxes paid therefore are computed as follows, based on a
$60,000 income amount:
State income tax ..................................................... $ 3,701
Property tax on home ............................................ 4,200
BYP 11-9 FASB CODIFICATION ACTIVITY
(a) Current liabilities is used principally to designate obligations whose
liquidation is reasonably expected to require the use of existing
resources properly classifiable as current assets, or the creation of
other current liabilities. See paragraphs 210-10-45-5 through 45-12.
(b) A contingent liability is an existing condition, situation, or set of circum-
stances involving uncertainty as to possible gain (gain contingency) or
IFRS EXERCISES
IFRS 11-1
Under IFRS a provision is defined as a liability of uncertain timing or amount.
Examples include warranties, employee vacation pay, and anticipated losses.
IFRS 11-2
The similarities between GAAP and IFRS include: (1) the basic definition of
a liability, and (2) the accounting for notes payable, unearned revenue, and
payroll taxes.
IFRS11-3 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Louis Vuitton reported €11,700 million total current liabilities as of
December 31, 2013. Included in current liabilities were €322 million of
provisions.
(b) Note 1.18 of Vuitton’s annual report indicated that a provision is
recognized whenever an obligation exists towards a third party
