EXERCISE 13.6 (Continued)
(b) Accrued liability at year-end:
2018
2019
Vacation
Payable
Sick Pay
Payable
Vacation
Payable
Sick Pay
Payable
Jan. 1 balance
€ 0
€ 0
€ 8,640
€1,728
€8,640
€1,728
(1)
9 employees X €12.00/hr. X 8 hrs./day X 10 days =
€ 8,640
(2)
9 employees X €12.00/hr. X 8 hrs./day X (6–4) days =
€ 1,728
€10,224
EXERCISE 13.7 (25–30 minutes)
(a)
2018
To accrue the expense and liability for vacations
Salaries and Wages Expense …………….
Salaries and Wages Payable ………
To record sick leave paid
Salaries and Wages Expense …………….
To record vacation time paid
EXERCISE 13.7 (Continued)
2019
To accrue the expense and liability for vacations
Salaries and Wages Expense…………….
9,864
(3)
Salaries and Wages Payable ……..
9,864
To record sick leave paid
Salaries and Wages Expense…………….
4,680
(4)
Cash ………………………………………..
4,680
To record vacation time paid
Salaries and Wages Expense…………….
Salaries and Wages Payable ……………..
8,359
(5)
Cash ………………………………………..
8,424
(6)
(1) 9 employees X €12.90/hr. X 8 hrs./day X 10 days = €9,288
(2) 9 employees X €12.00/hr. X 8 hrs./day X 4 days = €3,456
(b)
Accrued liability at year-end:
2018
2019
Jan. 1 balance
€ 0
€ 9,288
+ accrued
Dec. 31 balance
(1)
(2)
(1)
9 employees X €12.90/hr. X 8 hrs./day X 10 days …..
€ 9,288
(2)
9 employees X €12.90/hr. X 8 hrs./day X 1 day ………
€ 929
EXERCISE 13.8 (5–7 minutes)
(a)
June 30
Sales Revenue …………………………………………………
23,700
Sales Taxes Payable ………………………………
23,700
Computation:
+ R$153,700) …………………………………….
÷ 1.06) ……………………………………………..
(b) If the adjusting entry related to a VAT rather than sales tax, it would be
recorded as follows:
Sales Revenue ……………………………………………………….
Value Added Taxes Payable …………………………..
EXERCISE 13.9 (10 minutes)
(a)
Cash (€40,000 + €6,000) …………………………………………..
46,000
Sales Revenue ………………………………………………..
40,000
Value Added Taxes Payable (€40,000 X 15%) ……
6,000
(b)
Eastwood Ranchers does not have a net cash outlay related to the
EXERCISE 13.10 (10–15 minutes)
Salaries and Wages Expense …………………………………..
340,000
Withholding Taxes Payable ……………………………..
80,000
Social Security Taxes Payable* ………………………..
27,200
Union Dues Payable ………………………………………..
Cash ………………………………………………………………
223,800
Payroll Tax Expense ………………………………………………..
Social Security Taxes Payable …………………………
(See previous computation.)
EXERCISE 13.11 (15–20 minutes)
(a)
Computation of taxes
Factory
Wages …………………………..…….
€140,000
Social security taxes…………….
Total cost …………………………….
Wages …………………………..…….
Social security taxes…………….
Total cost …………………………….
Wages …………………………..…….
Social security taxes…………….
Total cost …………………………….
EXERCISE 13.11 (Continued)
Schedule
Total
Factory
Sales
Administrative
Wages
€208,000
€140,000
€32,000
€36,000
Social Security
(b)
Factory Payroll:
Salaries and Wages Expense …………………..
140,000
Withholding Taxes Payable………………
Social Security Taxes Payable ………….
Cash ……………………………………………….
Payroll Tax Expense ……………………………….
11,200
Social Security Taxes Payable ………….
Sales Payroll:
Salaries and Wages Expense …………………..
32,000
Withholding Taxes Payable………………
7,000
Social Security Taxes Payable ………….
2,560
Cash ……………………………………………….
Payroll Tax Expense ……………………………….
Social Security Taxes Payable ………….
Administrative Payroll:
Salaries and Wages Expense …………………..
36,000
Withholding Taxes Payable………………
6,000
Social Security Taxes Payable ………….
2,880
Cash ……………………………………………….
Payroll Tax Expense ……………………………….
Social Security Taxes Payable ………….
2,880
EXERCISE 13.12 (10–15 minutes)
July 10, 2019
Cash (200 X £4,000) …………………………………………………
800,000
Sales Revenue ………………………………………………..
800,000
Warranty Expense …………………………………………………..
Inventory …………………………..…………………………..
Warranty Expense …………………………………………………..
Warranty Liability (£66,000-£17,000) …………………
EXERCISE 13.13 (15–20 minutes)
At Sale
(a)
Cash ………………………………………………………………………
3,000,000
Sales Revenue ………………………………………………..
3,000,000
Warranty Expense …………………………………………………..
Cash, Supplies, Wages Payable ……………………….
At Sale
(b)
Cash ………………………………………………………………………
3,000,000
Sales Revenue ………………………………………………..
2,944,000
Unearned Warranty Revenue …………………………..
Warranty Expense …………………………………………………..
Cash, Supplies, Wages Payable ……………………….
EXERCISE 13.13 (Continued)
December 31, 2019
Unearned Warranty Revenue …………………………..
Warranty Revenue ………………………………………….
(€56,000 ÷ 2)
EXERCISE 13-14 (15–20 minutes)
Inventory of Premiums (8,800 X $.80) ……………………….
7,040
Cash ………………………………………………………………
7,040
During 2019
Cash (110,000 X $3.30) …………………………………………….
Sales Revenue ………………………………………………..
Premium Expense …………………………………………………..
Inventory of Premiums [(44,000 ÷ 10) X $.80] …….
Premium Liability ……………………………………………
*[(110,000 X 60%) – 44,000] ÷ 10 X $.80 = 1,760
EXERCISE 13.15 (15–20 minutes)
(1) Lease termination penalties are included. The ¥400,000 penalty to break
the lease should therefore be included.
(3) Costs of training staff are excluded.
(4) Use of an outplacement firm to assist with the terminations are
EXERCISE 13.16 (15–20 minutes)
(a) A restructuring is a program that is planned and controlled by
management and materially changes either (1) the scope of a business
(b) The two provisions are described that the company (1) has a detailed
formal plan for the restructuring; and (2) raises a valid expectation to
those affected by implementation or announcement of the plan.
EXERCISE 13.17 (20–30 minutes)
1. The IASB requires that, when some amount within the range of ex–
pected loss appears at the time to be a better estimate than any other
2. The loss should be accrued for €6,000,000. The potential insurance
3. This is a contingent asset because the amount to be received will be in
excess of the book value of the plant. Contingent assets are not
EXERCISE 13.18 (25–30 minutes)
(a)
January 1, 2019
Depot …………………………..…………………………………………
600,000
Cash ……………………………………………………….
600,000
Depot …………………………..…………………………………………
Environmental Liability …………………………..
(b)
December 31, 2019
Depreciation Expense ……………………………………………..
60,000
Accumulated Depreciation—Depot …………………..
60,000
Depreciation Expense ……………………………………………..
Accumulated Depreciation—Depot …………………..
Interest Expense …………………………………………………….
(c)
December 31, 2028
Environmental Liability ……………………………………………
70,000
Loss on Settlement of Environmental Liability ………….
10,000
EXERCISE 13.19 (25–35 minutes)
1.
Liability for stamp redemptions, 12/31/18
$13,000,000
Cost of redemptions redeemed in 2019
(6,000,000)
2.
Total coupons issued
$800,000
Redemption rate
60%
To be redeemed
480,000
Handling charges ($480,000 X 10%)
48,000
Total cost
Total payments to retailers
3.
Boxes
700,000
Redemption rate
70%
Coupons to be redeemed (490,000 – 250,000)
240,000
Cost ($6.50 – $4.00)
$2.50
EXERCISE 13.20 (20–30 minutes)
1. The present value of the major overhaul payments (£3,200,000) should
be included as part of the cost of the ship. The ship should be
recorded at £23,200,000.
2. The lease is considered an onerous contract because the unavoidable
costs of meeting the obligations under the lease exceed the benefits
3. The company should recognize the costs associated with dismantling
the plant upon building the plant as it has a legal obligation associated
with its retirement.
EXERCISE 13.21 (20–30 minutes)
1.
Total warranty liability at December 31, 2019 is $5,000,000 as
computed below
*Expected warranty costs
2.
The expected amount of $400,000 should be reported as income taxes
payable at December 31, 2019.
EXERCISE 13.22 (20–25 minutes)
#
Assets
Liabilities
Equity
Net Income
1.
I
I
NE
NE
2.
NE
NE
NE
NE
3.
NE
I
D
D
4.
I
I
NE
NE
6.
I
I
I
I
7.
D
I
D
D
8.
NE
I
D
D
9.
NE
I
D
D
10.
I
I
NE
NE
11.
NE
I
D
D
12.
I
I
I
I
13.
D
D
NE
NE
14.
NE
I
D
D
15.
D
NE
D
D
16.
NE
D
I
I
LO: 4, Bloom: AP, Difficulty: Moderate, Time: 20-25, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
EXERCISE 13.23 (10–15 minutes)
(a)
Current ratio =
Current Assets
=
¥210,000
= 3.00 times
Current Liabilities
¥70,000
Current ratio measures the short-term ability of the company to meet
its currently maturing obligations.
(c)
Debt to assets =
Total Liabilities
=
¥210,000
= 48.84%
Total Assets
¥430,000
This ratio provides the creditors with some idea of the corporation’s
ability to withstand losses without impairing the interests of creditors.
(d)
¥25,000
= 5.81%
EXERCISE 13.24 (20–25 minutes)
(a)
(1)
Current ratio =
¥733,000
= 3.05
¥240,000
Acid-test ratio =
= 1.21
(4) Inventory turnover =
¥800,000 ÷
¥360,000 + ¥440,000
= 2 times (or approximately
2
every 183 days)
(b) Financial ratios should be evaluated in terms of industry peculiarities
and prevailing business conditions. Although industry and general
business conditions are unknown in this case, the company appears
EXERCISE 13.25 (15–25 minutes)
(a)
(1)
€318,000 ÷ €87,000 = 3.66 times
(3)
€1,400,000 ÷ $95,000 = 14.74 times (or approximately 25 days).
(4) €210,000 ÷ 52,000 (€260,000 ÷ €5) = €4.04
(b) (1) No effect on current ratio, if already included in the allowance
for doubtful accounts.
(2) Weaken current ratio by reducing current assets.
TIME AND PURPOSE OF PROBLEMS
Problem 13.1 (Time 25–30 minutes)
Purpose—to present the student with an opportunity to prepare journal entries for a variety of situations
Problem 13.2 (Time 25–35 minutes)
Purpose—to present the student with the opportunity to prepare journal entries for several different
Problem 13.3 (Time 20–30 minutes)
Purpose—to present the student with an opportunity to prepare journal entries for four weekly payrolls.
The student must compute income tax to be withheld, and social security tax.
Problem 13.4 (Time 20–25 minutes)
Purpose—to provide the student with the opportunity to prepare journal entries for a monthly payroll.
Problem 13.5 (Time 15–20 minutes)
Purpose—to provide the student with an opportunity to prepare journal entries and statement of
Problem 13.6 (Time 10–20 minutes)
Purpose—to provide the student with a basic problem covering the sales-warranty method. The student
Problem 13.7 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to prepare journal entries for warranty costs. The
student is also required to indicate the proper statement of financial position disclosures for the year of
sale.
Problem 13.8 (Time 15–25 minutes)
Purpose—to provide the student with a basic problem in accounting for premium offers. The student is
Time and Purpose of Problems (Continued)
Problem 13.9 (Time 30–45 minutes)
Purpose—to present the student with a slightly complicated problem related to accounting for premium
offers. The problem is more complicated in that coupons redeemed are accompanied by cash payments,
Problem 13.10 (Time 25–30 minutes)
Purpose—to present the student with the problem of determining the proper amount of and disclosure
Problem 13.11 (Time 35–45 minutes)
Purpose—to provide the student with a comprehensive problem dealing with contingent liabilities. The
Problem 13.12 (Time 20–30 minutes)
Purpose—to provide the student with a problem to calculate warranty expense, warranty liability, premium
expense, inventory of premiums, and estimated premium liability.
Problem 13.13 (Time 25–35 minutes)
Problem 13.14 (Time 20–25 minutes)
Purpose—to present the student with a comprehensive problem in determining the amounts of various
SOLUTIONS TO PROBLEMS
PROBLEM 13.1
(a) February 2
Purchases (€70,000 X 98%) ……………………………..
68,600
Accounts Payable …………………………………..
68,600
February 26
Accounts Payable …………………………………………..
68,600
Purchase Discounts Lost ………………………………..
Cash ……………………………………………………..
70,000
April 1
Trucks ……………………………………………………………
50,000
Cash ……………………………………………………..
Notes Payable ………………………………………..
August 1
Retained Earnings (Dividends Declared) …………..
300,000
Dividends Payable ………………………………….
300,000
September 10
Dividends Payable …………………………………………..
300,000
Cash ……………………………………………………..
(b) December 31
1. No adjustment necessary
2. Interest Expense (€46,000 X 12% X 9/12) ………
Interest Payable ……………………………………..
3. No adjustment necessary