Problem 9-3A (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Dali
Trey
Kiesha
Chee
Total
Maximum base …………..
$118,500
$118,500
$118,500
$118,500
Earned through 8/18 …..
Yet under maximum ……
Subject to tax ……………..
Tax rate ……………………..
6.20%
Social Security tax ……..
$176.70
2. Each employee’s FICA withholdings for Medicare (no limits)
Dali
Trey
Kiesha
Chee
Total
Earned this week ………
$ 2,000
$ 900
$ 450
$ 400
Tax rate ……………………
Medicare tax …………….
$ 29.00
$ 13.05
$ 6.53
$ 5.80
3. Employer’s FICA taxes for Social Security
Dali
Trey
Kiesha
Chee
Total
$ 68.20
$ 55.80
$ 27.90
$ 24.80
4. Employer’s FICA taxes for Medicare
Dali
Trey
Kiesha
Chee
Total
$ 29.00
$ 13.05
$ 5.80
Problem 9-3A (Concluded)
5. Employer’s FUTA taxes
Dali
Trey
Kiesha
Chee
Total
Maximum base ……………..
$ 7,000
$ 7,000
Earned through 8/18 ……..
6,900
Yet under maximum ………
Earned this week …………..
$ 2,000
$ 900
$ 450
$ 400
Subject to tax ………………..
Tax rate ………………………..
0.6%
6. Employer’s SUTA taxes
Dali
Trey
Kiesha
Chee
Total
Subject to tax (from 5) …
$ 0
$ 0
$ 100
$ 400
Tax rate ………………………
2.15%
7. Each employee’s net (take-home) pay
Dali
Trey
Kiesha
Chee
Total
Gross earnings …………..
$2,000.00
$ 900.00
$450.00
$400.00
$3,750.00
(6.53)
(284.00)
(30.00)
(20.00)
8. Employer’s total payroll–related expense for each employee
Dali
Trey
Kiesha
Chee
Total
Gross earnings ……………
$2,000.00
$ 900.00
$450.00
$400.00
$3,750.00
Plus
FICA Social Sec. tax …….
68.20
55.80
27.90
24.80
176.70
FICA Medicare taxes ……
29.00
13.05
54.38
FUTA tax ……………………..
SUTA tax ……………………..
10.75
Problem 9-4A (40 minutes)
1.
2015
Nov. 11
Cash ………………………………………………………………..
7,875
Sales ………………………………………………………….
7,875
Sold razors to customers.
2,100
Merchandise Inventory ……………………………….
2,100
To record cost of November 11 sale (105 x $20).
Warranty Expense ……………………………………………
630
Estimated Warranty Liability ……………………….
630
and liability at 8% of selling price.
Dec. 9
Estimated Warranty Liability …………………………….
300
Merchandise Inventory ……………………………….
300
replacements (15 x $20).
Cash ………………………………………………………………..
Sales ………………………………………………………….
Sold razors to customers.
4,400
Merchandise Inventory ……………………………….
4,400
To record cost of December 16 sale (220 x $20).
Estimated Warranty Liability …………………………….
600
Merchandise Inventory ……………………………….
600
replacements (30 x $20).
Warranty Expense ……………………………………………
1,320
Estimated Warranty Liability ……………………….
1,320
Problem 9-4A (Concluded)
2016
Jan. 5
Cash ………………………………………………………………..
11,250
Sales ………………………………………………………….
11,250
Sold razors to customers.
Cost of Goods Sold ………………………………………….
Merchandise Inventory ……………………………….
To record cost of January 5 sale (150 x $20).
Estimated Warranty Liability …………………………….
Merchandise Inventory ……………………………….
Warranty Expense ……………………………………………
Estimated Warranty Liability ……………………….
and liability at 8% of selling price.
2. Warranty expense for November 2015 and December 2015
Sales
Percent
Warranty Expense
November ……………..
$ 7,875
8%
$ 630
December ………………
Total ……………………..
3. Warranty expense for January 2016
Sales in January …………………………
Warranty percent ………………………..
4. Balance of the estimated liability as of December 31, 2015
Warranty expense for November ………………………………
$ 630
credit
Warranty expense for December ………………………………
credit
Cost of replacing items in December (45 x $20) ………..
5. Balance of the estimated liability as of January 31, 2016
Beginning balance ………………………………………………….
$1,050
credit
Warranty expense for January ………………………………..
credit
Cost of replacing items in January (50 x $20) …………..
Problem 9-5A (60 minutes)
1. Miller Company
2. Weave Company
3. Sales increase by 30% (multiply prior sales by 1.3)
Miller Co.
Weave Co.
Sales ………………………………………
$1,300,000
$1,300,000
1,040,000
4. Sales increase by 50% (multiply prior sales by 1.5)
Miller Co.
Weave Co.
Sales ………………………………………
$1,500,000
$1,500,000
5. Sales increase by 80% (multiply prior sales by 1.8)
Miller Co.
Weave Co.
Sales ………………………………………
$1,800,000
$1,800,000
Problem 9-5A (Continued)
6. Sales decrease by 10% (multiply prior sales by 0.9)
Miller Co.
Weave Co.
Sales ………………………………….
$900,000
$900,000
$120,000
$100,000
7. Sales decrease by 20% (multiply prior sales by 0.8)
Miller Co.
Weave Co.
Sales ………………………………….
$800,000
$800,000
$100,000
$ 60,000
8. Sales decrease by 40% (multiply prior sales by 0.6)
Miller Co.
Weave Co.
Sales ………………………………….
$600,000
$600,000
$ 60,000
9. The higher fixed cost strategy (having more fixed interest expense) of
Weave Co. accentuates the effects of increases and decreases in sales.
That is, increases in sales produce greater increases in net income and
Problem 9-6AA (50 minutes)
Mar. 15
FICA⎯Social Security Taxes Payable ……………….
3,472
FICA⎯Medicare Taxes Payable ………………………..
Employee Fed. Income Taxes Payable. ……………..
4,000
Cash ……………………………………………………….
31
Office Salaries Expense ……………………………………
11,200
Shop Salaries Expense …………………………………….
16,800
FICA⎯Social Sec. Taxes Payable ………………..
1,736
Employee Fed. Income Taxes Payable …………
Salaries Payable …………………………………………
31
Salaries Payable ………………………………………………
21,858
Cash ……………………………………………………….
31
Payroll Taxes Expense* …………………………………….
2,786
FICA⎯Social Sec. Taxes Payable ………………..
1,736
FICA⎯Medicare Taxes Payable …………………..
State Unemployment Taxes Payable ……………
Federal Unemployment Taxes Payable ………..
Problem 9-6AA (Concluded)
Apr. 15
FICA⎯Social Security Taxes Payable ……………….
3,472
FICA⎯Medicare Taxes Payable ………………………..
812
4,000
15
State Unemployment Taxes Payable …………………
2,800
30
30
PROBLEM SET B
Problem 9-1B (45 minutes)
Fox–Pro
Spring
Bank
City
Bank
1.
Maturity dates
Term of the note (in days) ……………
Maturity date …………………………..
2.
Interest due at maturity
Principal of the note …………………….
$4,600
$12,000
$8,000
60/360
120/360
45/360
$ 90
3.
Accrued interest on City Bank note at the end of 2015
Total interest for note ……………………………………………………….
$ 90
Accrued interest expense …………………………………………………
$ 50
4. Interest in 2016
Total interest for note ……………………………………………………….
$ 90
$ 40
Problem 9-1B (Concluded)
5.
2015
Apr. 22
Merchandise Inventory …………………………………….
5,000
Accounts Payable⎯Fox–Pro ……………………….
5,000
Purchased merchandise on credit.
Notes Payable⎯Fox–Pro ……………………………..
4,600
Notes Payable⎯Spring Bank ………………………
Borrowed cash with a 120-day, 10% note.
Nov. 12
Dec. 6
8,000
Notes Payable⎯City Bank …………………………..
Borrowed cash with a 45-day, 9% note.
Accrued interest on note payable.
Paid note with interest.
Problem 9-2B (25 minutes)
Part 1
Jan. 8
Sales Salaries Expense …………………………………….
34,745.00
Office Salaries Expense ……………………………………
21,225.00
Delivery Salaries Expense…………………………..
FICA—Social Security Taxes Payable* …………
3,534.00
FICA—Medicare Taxes Payable** …………………
Employee Med. Insurance Payable ………………
1,160.00
Salaries Payable ………………………………………….
Part 2
Jan. 8
Payroll Taxes Expense ……………………………………..
6,640.50
FICA—Social Security Taxes Payable ………….
3,534.00
State Unemployment Taxes Payable* …………..
Federal Unemployment Taxes Payable** ………..
Problem 9-3B (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Ahmed
Carlos
Jun
Marie
Total
Maximum base ……………
$118,500
$118,500
$118,500
$118,500
Earned through 9/23 ……
116,900
116,985
6,650
23,700
Yet under maximum …….
Subject to tax ………………
Tax rate ………………………
6.20%
6.20%
6.20%
Social Security tax ………
2. Each employee’s FICA withholdings for Medicare (no limits)
Ahmed
Carlos
Jun
Marie
Total
Earned this week …………
$ 1,515
Tax rate ………………………
Medicare tax ……………….
$ 21.97
$ 79.61
3. Employer’s FICA taxes for Social Security
Ahmed
Carlos
Jun
Marie
Total
$ 62.00
4. Employer’s FICA taxes for Medicare
Ahmed
Carlos
Jun
Marie
Total
Problem 9-3B (Concluded)
5. Employer’s FUTA taxes
Ahmed
Carlos
Jun
Marie
Total
Maximum base …………
$ 7,000
$ 7,000
$ 7,000
$ 7,000
Earned through 9/23 …
Yet under maximum ….
$ 0
$ 0
Earned this week ……..
$ 2,500
$ 1,515
$ 1,000
Subject to tax …………..
$ 0
$ 0
Tax rate ……………………
0.6%
0.6%
6. Employer’s SUTA taxes
Ahmed
Carlos
Jun
Marie
Total
Subject to tax (from 5) .
$ 0
$ 0
Tax rate ……………………
1.75%
1.75%
7. Each employee’s net (take-home pay)
Ahmed
Carlos
Jun
Marie
Total
Gross earnings………….
$2,500.00
$1,515.00
$475.00
$1,000.00
$5,490.00
Less
8. Employer’s total payroll-related expense for each employee
Ahmed
Carlos
Jun
Marie
Total
Gross earnings………….
$2,500.00
$1,515.00
$475.00
$1,000.00
$5,490.00
Plus
FUTA tax …………………..
SUTA tax …………………..
Problem 9-4B (40 minutes)
1.
2015
Nov. 16
Cash ………………………………………………………………..
2,500
Sales ………………………………………………………….
2,500
Sold coffee grinders to customers.
1,200
Merchandise Inventory ……………………………….
1,200
To record cost of November 16 sale (50 x $24).
Warranty Expense ……………………………………………
250
Estimated Warranty Liability ……………………….
250
and liability at 10% of selling price.
Dec. 12
Estimated Warranty Liability …………………………….
144
Merchandise Inventory ……………………………….
144
warranty replacements (6 x $24).
Cash ………………………………………………………………..
Sales ………………………………………………………….
Sold coffee grinders to customers.
4,800
Merchandise Inventory ……………………………….
4,800
To record cost of December 18 sale (200 x $24).
Estimated Warranty Liability …………………………….
408
Merchandise Inventory ……………………………….
408
warranty replacements (17 x $24).
Warranty Expense ……………………………………………
1,000
Estimated Warranty Liability ……………………….
1,000
Problem 9-4B (Concluded)
2016
Cost of Goods Sold ………………………………………….
Estimated Warranty Liability …………………………….
Warranty Expense ……………………………………………
2. Warranty expense for November 2015 and December 2015
Sales
Percent
Warranty Expense
November ……………………
$ 2,500
10%
$ 250
December …………………….
3. Warranty expense for January 2016
Sales in January………………………..
$2,000
Warranty percent ………………………
4. Balance of the estimated liability as of December 31, 2015
Warranty expense for November ……………………………..
$ 250
credit
Warranty expense for December………………………………
credit
Cost of replacing items in December (23 x $24) ………..
5. Balance of the estimated liability as of January 31, 2016
Beginning balance …………………………………………………..
$ 698
credit
Warranty expense for January …………………………………
credit
Cost of replacing items in January (36 x $24) …………..
Problem 9-5B (60 minutes)
1. Ellis Company
2. Seidel Company
3. Sales increase by 10% (multiply prior sales by 1.10)
Ellis Co.
Seidel Co.
Sales ………………………………….
$264,000
$264,000
Variable expenses ……………..
Income before interest ……….
$ 42,000
$ 36,000
4. Sales increase by 40% (multiply prior sales by 1.40)
Ellis Co.
Seidel Co.
Sales ………………………………….
$336,000
$336,000
Variable expenses ……………..
Income before interest ……….
$ 78,000
$ 54,000
5. Sales increase by 90% (multiply prior sales by 1.90)
Ellis Co.
Seidel Co.
Sales ………………………………….
$456,000
$456,000
Variable expenses ……………..
Income before interest ……….
$138,000
$ 84,000
Problem 9-5B (Concluded)
6. Sales decrease by 20% (multiply prior sales by 0.80)
Ellis Co.
Seidel Co.
Sales ………………………………….
$192,000
$192,000
Variable expenses ……………..
Income before interest ……….
7. Sales decrease by 50% (multiply prior sales by 0.50)
Ellis Co.
Seidel Co.
Sales ………………………………….
$120,000
$120,000
Variable expenses ……………..
Income before interest ……….
8. Sales decrease by 80% (multiply prior sales by 0.20)
Ellis Co.
Seidel Co.
Sales ………………………………….
$ 48,000
$ 48,000
Variable expenses ……………..
Income before interest ……….
9. The higher fixed cost strategy (having more fixed interest expense) of
Ellis Co. accentuates the effects of increases and decreases in sales.
Problem 9-6BA (50 minutes)
232
Employee Fed. Income Taxes Payable ………………
1,050
Cash ……………………………………………………….
30
Office Salaries Expense ……………………………………
3,800
Shop Salaries Expense …………………………………….
4,200
FICA—Social Security Taxes Payable ………….
Employee Fed. Income Taxes Payable …………
Salaries Payable …………………………………………
30
Salaries Payable ………………………………………………
6,338
30
Payroll Taxes Expense* …………………………………….
612