Accounting Chapter 13 when some amount within the range of expected

EXERCISE 13.6 (10–15 minutes)

Salaries and Wages Expense …………………………………..

480,000

Withholding Taxes Payable ……………………………..

80,000

FICA Taxes Payable* ……………………………………….

29,900

Union Dues Payable ………………………………………..

Cash ………………………………………………………………

361,100

*[($480,000 – $110,000) X 7.65% = $28,305

$110,000 X 1.45% = $1,595; $28,305 + $1,595 = $29,900

Payroll Tax Expense ……………………………………………….

FICA Taxes Payable ………………………………………..

(See previous computation.)

FUTA Taxes Payable ……………………………………….

[($480,000 – $400,000) X .8%)

[$80,000 X (3.5% – 2.3%)]

EXERCISE 13.7 (15–20 minutes)

(a)

Computation of taxes

Factory

Wages

$120,000

Social security taxes (FICA)

9,180

(7.65% X $120,000)

Federal unemployment taxes

320

(.8% X $40,000)

1,000

(2.5% X $40,000)

Wages

$32,000

Social security taxes (FICA)

Federal unemployment taxes

(.8% X $4,000)

State unemployment taxes

(2.5% X $4,000)

EXERCISE 13.7 (continued)

Administrative

Wages

$36,000

Social security taxes (FICA)

2,754

(7.65% X $36,000)

Federal unemployment taxes

State unemployment taxes

Total Cost

Schedule

Total

Factory

Sales

Administrative

Wages

$188,000

$120,000

$32,000

$36,000

FICA

Federal U.T.

352

State U.T.

1,100

1,000

100

– 0 –

Total Cost

(b)

Factory Payroll:

Salaries and Wages Expense …………………………..

120,000

Withholding Taxes Payable ……………………..

16,000

FICA Taxes Payable ………………………………..

Cash ………………………………………………………

Payroll Tax Expense ……………………………………….

FICA Taxes Payable ………………………………..

FUTA Taxes Payable ……………………………….

SUTA Taxes Payable ……………………………….

EXERCISE 13.7 (Continued)

Sales Payroll:

Salaries and Wages Expense …………………………..

32,000

Withholding Taxes Payable ……………………..

7,000

FICA Taxes Payable ………………………………..

1,208

Cash ………………………………………………………

23,792

Payroll Tax Expense ……………………………………….

1,340

FICA Taxes Payable ………………………………..

1,208

FUTA Taxes Payable ……………………………….

SUTA Taxes Payable ……………………………….

Administrative Payroll:

Salaries and Wages Expense …………………………..

36,000

Withholding Taxes Payable ……………………..

6,000

FICA Taxes Payable ………………………………..

2,754

Cash ………………………………………………………

27,246

Payroll Tax Expense ……………………………………….

FICA Taxes Payable ………………………………..

2,754

EXERCISE 13.8 (10–12 minutes)

Hattie McDaniel Company

Partial Balance Sheet

December 31, 2020

Current liabilities:

Notes payable (Note 1)

$1,200,000

Note 1

Short-term debt refinanced. As of December 31, 2020, the company had

EXERCISE 13.9 (20–25 minutes)

HOLMES COMPANY

Partial Balance Sheet

December 31, 2020

Current liabilities:

Notes payable (Note 1)

$3,400,000*

Long-term debt:

Note 1

Under a financing agreement with Gotham State Bank the Company has

the contractual right to borrow up to 60% of the gross amount of its

accounts receivable at an interest cost of 1% above the prime rate. The

EXERCISE 13.10 (10–15 minutes)

July 10, 2020

Cash (200 X $4,000) …………………………………………………

800,000

Sales Revenue ………………………………………………..

800,000

During 2020

Warranty Expense …………………………………………………..

Inventory ……………………………………………………….

Warranty Expense …………………………………………………..

Warranty Liability ($66,000 – $17,000) ……………….

EXERCISE 13.11 (15–20 minutes)

At Sale

(a)

Cash …………………………..………………………………………….

3,000,000

Sales Revenue ………………………………………………..

3,000,000

During 2020

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 13.11 (Continued)

Warranty Revenue …………………………………………..

EXERCISE 13.12 (15–20 minutes)

Inventory of Premiums (8,800 X $.80) ……………………….

7,040

Cash ………………………………………………………………

7,040

During 2020

Cash (110,000 X $3.30) …………………………………………….

363,000

Sales Revenue …………………………..……………………

Premium Expense …………………………………………………..

Inventory of Premiums [(44,000 ÷ 10) X $.80] …….

Premium Expense …………………………………………………..

Premium Liability ……………………………………………

1,760

*[(110,000 X 60%) – 44,000] ÷ 10 X $.80 = 1,760

EXERCISE 13.13 (20–30 minutes)

1. The FASB requires that, when some amount within the range of

expected loss appears at the time to be a better estimate than any

EXERCISE 13.13 (Continued)

3. This is a gain contingency because the amount to be received will be

in excess of the book value of the plant. Gain contingencies are not

EXERCISE 13.14 (25–30 minutes)

(a)

Plant Assets ……………………………………………………….

600,000

Cash …………………………..………………………………….

600,000

Plant Assets ……………………………………………………….

41,879

Asset Retirement Obligation …………………………..

41,879

(b)

Depreciation Expense ……………………………………………..

60,000

Accumulated Depreciation – Plant Assets ………..

60,000

Depreciation Expense ……………………………………………..

Accumulated Depreciation – Plant Assets ………..

Interest Expense …………………………………………………….

(c)

Asset Retirement Obligation …………………………..

Loss on ARO Settlement …………………………………………

Cash …………………………..…………………………..

EXERCISE 13.15 (25–35 minutes)

1.

Liability for stamp redemptions, 12/31/19

$13,000,000

Cost of redemptions redeemed in 2020

(6,000,000)

2.

Total coupons issued

$800,000

Redemption rate

60%

To be redeemed

480,000

Total cost

$528,000

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 13.16 (30–35 minutes)

#

Assets

Liabilities

Owners’ Equity

Net Income

1

I

NE

2

NE

3

NE

I

D

4

I

NE

5

NE

I

D

6

I

7

I

D

8

NE

I

D

9

NE

I

D

10

I

NE

11

NE

I

D

12

NE

I

D

13

NE

I

D

14

NE

15

I

16

NE

D

17

NE

18

NE

I

D

EXERCISE 13.17 (15–20 minutes)

(a)

Current Ratio =

Current Assets

=

$210,000

= 2.63

Current Liabilities

$80,000

Current ratio measures the short-term ability of the company to meet

its currently maturing obligations.

(c)

Debt to assets =

Total Liabilities

=

$220,000

= 51.16%

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)

EXERCISE 13.18 (20–25 minutes)

(a)

(1)

Current ratio =

$773,000

= 3.22 times

$240,000

(2)

Acid-test ratio =

= 1.38 times

EXERCISE 13.18 (Continued)

(3) Accounts receivable turnover =

$1,640,000 ÷

$80,000 + $198,000

= 11.8 times (or approximately

2

every 31 days)

(5) Return on assets =

$360,000 ÷

$1,400,000 + $1,630,000

= 23.76%

2

(b) Financial ratios should be evaluated in terms of industry peculiarities

and prevailing business conditions. Although industry and general

EXERCISE 13.19 (15–25 minutes)

(a)

(1)

$318,000* ÷ $87,000** = 3.66 times

(3)

$1,400,000 ÷ $95,000 = 14.74 times (25 days)

EXERCISE 13.19 (Continued)

(4) $410,000 ÷ 52,000 = $7.88

(b) (1) No effect on current ratio, if already included in the allowance

for doubtful accounts.

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.

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 balance sheet

Problem 13.6 (Time 10–20 minutes)

Purpose—to provide the student with a basic problem covering service-type warranty. The student is

Problem 13.7 (Time 25–35 minutes)

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 losses. The

student is required to prepare journal entries for each of three independent situations. For each situation

Problem 13.12 (Time 20–30 minutes)

Purpose—to provide the student with a problem to calculate warranty expense, estimated warranty

Problem 13.13 (Time 25–35 minutes)

Purpose—to present the student a comprehensive problem in determining various liabilities and present

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

1. Purchases ($70,000 X 98%) ……………………………..

68,600

Accounts Payable ………………………………….

68,600

February 26

Accounts Payable …………………………………………..

Purchase Discounts Lost ………………………………..

1,400

Cash ……………………………………………………..

April 1

2. Trucks ……………………………………………………………

50,000

Cash ……………………………………………………..

Notes Payable ………………………………………..

May 1

3. Cash ………………………………………………………………

83,000

Discount on Notes Payable ……………………………..

9,000

Notes Payable ………………………………………..

92,000

Dividends Payable ………………………………….

Dividends Payable ………………………………………….

Cash ……………………………………………………..

(b) December 31

1. No adjustment necessary

2. Interest Expense ($46,000 X 12% X 9/12) ………

4,140

Interest Payable ……………………………………..

PROBLEM 13.1 (Continued)

4. No adjustment necessary

PROBLEM 13.2

1.

Dec. 5

Cash ……………………………………………………….

500

Due to Customer …………………………..

500

2.

Dec. 1-31

Cash ……………………………………………………….

798,000

Sales Taxes Payable

($760,000 X .05) …………………………..

3.

Dec. 10

Trucks ($120,000 X 1.05) …………………………..

126,000

Cash ……………………………………………………….

4.

Dec. 31

Land Improvements …………………………..

Asset Retirement Obligation …………………………..

Sales Revenue

PROBLEM 13.3

Entries for Payroll 1

Salaries and Wages Expense …………………………………..

1,040.00*

Withholding Taxes Payable (.10 X $1,040)* ……….

104.00

FICA Taxes Payable (.0765 X $1,040) ………………..

79.56

Union Dues Payable (.02 X $1,040)……………………

20.80

Cash ………………………………………………………………

835.64

*$200 + $150 + $110 + $250 + $330 = $1,040

Payroll Tax Expense ………………………………………………..

FICA Taxes Payable (.0765 X $1,040) ………………..

79.56

FUTA Taxes Payable

[.008 X $460*] …………………………..…………………..

SUTA Taxes Payable (.025 X $460*) ………………….

11.50

Entries for Payroll 2 and 3

Salaries and Wages Payable (Vacation) ……………………

590.00*

Salaries and Wages Expense ($200 + $250) ………………

450.00

Withholding Taxes Payable (.10 X $1,040) …………

104.00

FICA Taxes Payable (7.65% X $1,040) ……………….

79.56

Union Dues Payable (2% X $1,040) …………………..

20.80

Cash ………………………………………………………………

835.64

*($300 + $220 + $660) ÷ 2

Payroll Tax Expense ………………………………………………..

FICA Taxes Payable (.065 X $1,040) ………………….

79.56

FUTA Taxes Payable (.008 X $460) ……………………

11.50

PROBLEM 13.3 (Continued)

Entries for Payroll 4

Salaries and Wages Expense …………………………………..

1,040.00

Withholding Taxes Payable (.10 X $1,040) …………

104.00

FICA Taxes Payable (.0765 X $1,040) ………………..

Union Dues Payable (.02 X $1,040) …………………..

Cash ………………………………………………………………

835.64

Payroll Tax Expense ……………………………………………….

FICA Taxes Payable (.0765 X $1,040) ………………..

SUTA Taxes Payable (.025 X $460) …………………..

Monthly Payment of Payroll Liabilities

Withholding Taxes Payable ($104.00 X 4) ………………….

416.00

FICA Taxes Payable ($79.56 X 8) ………………………………

636.48

Union Dues Payable ($20.80 X 4) ……………………………..

FUTA Taxes Payable ($3.68 X 4) ……………………………….

SUTA Taxes Payable ($11.50 X 4) …………………………..

Cash ………………………………………………………………

PROBLEM 13.4

(a)

Name

Earnings

to Aug. 31

September

Earnings

Income Tax

Withholding

FICA

SUTA

FUTA

B. D. Williams

$ 6,800

$ 800

$ 80

$ 61.20

$2.00*

$1.60**

D. Raye

6,500

700

70

53.55

5.00***

4.00****

K. Baker

7,600

1,100

110

84.15

F. Lopez

13,600

1,900

190

A. Daniels

B. Kingston

–

Salaries and Wages Expense …………………………..

33,500.00

Withholding Taxes Payable …………………………..

3,350.00

FICA Taxes Payable ………………………………………..

1,880.75

Cash ……………………………………………………….

28,269.25

(b)

Payroll Tax Expense ……………………………………………….

1,893.35

FICA Taxes Payable ………………………………………..

1,880.75

FUTA Taxes Payable ……………………………………….

SUTA Taxes Payable ……………………………………….

(c)

Withholding Taxes Payable ……………………………………..

FICA Taxes Payable …………………………..……………………

FUTA Taxes Payable ……………………………………………….

SUTA Taxes Payable ……………………………………………….

Cash ……………………………………………………….

7,124.10