563
Problem 9-6BA (Concluded)
July 15
FICA⎯Social Security Taxes Payable ……………….
992
Employee Fed. Income Taxes Payable ………………
federal income taxes.
15
State Unemployment Taxes Payable …………………
594
Cash ……………………………………………………….
594
Record payment of SUTA taxes.
31
Cash ……………………………………………………….
Record payment of FUTA taxes.
31
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Serial Problem — SP 11
Serial Problem — SP 11, Business Solutions (30 minutes)
1.
Gross pay (8 days x $125 per day) ……………………………..
$1,000.00
FICA Social Security tax deduction (6.2%)* …………………
FICA Medicare tax deduction (1.45%) …………………………
Income tax deduction ………………………………………………..
Total deductions ……………………………………………………….
2. 2020
Feb. 26
Wages Expense ……………………………………………….
1,000.00
FICA—Social Security Taxes Payable ………….
62.00
FICA—Medicare Taxes Payable …………………..
14.50
Employee Federal Income Taxes Payable …….
Cash ……………………………………………………….
3. 2020
Feb. 26
Payroll Taxes Expense ……………………………………..
136.50
FICA—Social Sec. Taxes Payable ………………..
62.00
FICA—Medicare Taxes Payable …………………..
14.50
State Unemployment Taxes Payable* …………..
Federal Unemployment Taxes Payable** ………..
4. 2020
Mar. 25
Accounts Receivable – Wildcat Services …………..
2,912
Sales ……………………………………………………….
2,800
Sales Taxes Payable …………………………………..
112
Sold merchandise on credit and collected
Mar. 25
2,002
Merchandise Inventory ……………………………….
2,002
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
565
Comprehensive Problem
Bug-Off Exterminators (100 minutes)
Part 1
a. Correct ending balance of cash and the amount of the omitted check
Balance per bank …………………………..
$15,100
Plus deposit in transit ……………………..
2,450
Reconciled balance …………………………
$15,750
Balance per books …………………………..
$17,000
Less service charges ………………………
Balance before omitted check ………….
(15,750)
$ 1,287
b. Allowance for doubtful accounts
Unadjusted balance …………………………
$ 828
credit
Anticipated write-off ………………………..
Revised unadjusted balance ……………
credit
Desired ending balance …………………..
credit
Necessary adjustment ……………………..
$ 551
credit
c. Depreciation expense on the truck
Cost ……………………………………………………….
$32,000
Less salvage value …………………………..
Depreciable cost …………………………..
$24,000
Useful life (years) …………………………..
Annual depreciation for 2019 ………………………
$ 6,000
d. Depreciation expense on the equipment
Sprayer
Injector
Cost ………………………………………………..
$27,000
$18,000
Less salvage value ………………………….
Useful life (years) …………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
566
Comprehensive Problem (Continued)
e. Adjusted revenue and unearned revenue balances
Total advance received ………………………………….
$ 3,840
Months in contract …………………………………………
12
Revenue per month ……………………………………….
$ 320
Months of services provided ………………………….
Total earned ($320 x 5 months) ………………………
Overstatement of revenue ($3,840 – $1,600) ……
$ 2,240
Extermination Services Revenue account
$60,000
Overstatement ……………………………………………….
$57,760
Unearned Services Revenue account
$ 0
Adjustment ……………………………………………………
$ 2,240
f. Warranty expense
Adjusted services revenue for the year (from e) ….
$57,760
Warranty percent ………………………………………….
Warranty expense (estimated) ……………………….
$ 1,444
$ 1,400
g. Note payable and interest accrual
The note originated on December 31, 2019. The first time interest
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
567
Comprehensive Problem (Continued)
Part 2
BUG-OFF EXTERMINATORS
December 31, 2019
Unadjusted
Trial Balance
Adjustments .
Adjusted
Trial Balance
Cash …………………………………….
$ 17,000
(a)
$1,250
$ 15,750
Accounts receivable ……………..
4,000
(b1)
679
3,321
Allowance for
doubtful accounts ………………
$ 828
(b1)
$ 679
(b2)
551
$ 700
Merchandise inventory …………
11,700
11,700
Accum. deprec.–Trucks ………..
(c)
Equipment …………………………..
45,000
45,000
Accum. deprec.–Equip …………
12,200
18,300
Accounts payable …………………
5,000
Estim. warranty liability …………
1,400
Unearned services rev ………….
(e)
Interest payable ……………………
Long–term notes payable ……..
15,000
15,000
Common stock ……………………..
10,000
10,000
Retained earnings …………………
49,700
49,700
Dividends …………………………..
10,000
10,000
Extermination
services revenue ………………..
60,000
(e)
2,240
57,760
Interest revenue ……………………
872
(a)
52
924
Sales ……………………………………..
71,026
71,026
Cost of goods sold ……………….
46,300
46,300
Deprec. expense–Trucks ………
6,000
Deprec. expense–Equip ………..
6,100
Wages expense …………………….
35,000
35,000
Interest expense ……………………
Rent expense ………………………..
9,000
9,000
Bad debts expense ……………….
Miscellaneous expense ………..
1,226
1,241
Repairs expense …………………..
8,000
8,000
Utilities expense ……………………
6,800
6,800
Warranty expense …………………
0
_______
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
568
Comprehensive Problem (Continued)
Part 3
2019
(a)
Miscellaneous Expenses ……………………………………..
15
Accounts Payable ………………………………………………..
1,287
Adjust cash account. (Separate entries are acceptable.)
(b1)
Allowance for Doubtful Accounts ………………………….
679
Wrote off uncollectible accounts.
(b2)
Bad Debts Expense ………………………………………………
551
Allowance for Doubtful Accounts …………………….
551
Recognize bad debts expense.
(c)
Depreciation Expense—Trucks ……………………………..
6,000
Depreciation on truck.
Depreciation Expense—Equipment ……………………….
Depreciation on equipment.
(e)
Extermination Services Revenue …………………………..
2,240
Unearned Services Revenue …………………………..
2,240
Adjust for unearned revenues.
Warranty Expense ………………………………………………..
Estimate warranty expense.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Comprehensive Problem (Continued)
Part 4
BUG-OFF EXTERMINATORS
Income Statement
For Year Ended December 31, 2019
Revenues
Extermination services revenue ……………
$57,760
Sales ……………………………………………………
71,026
Interest revenue …………………………………..
Total revenues……………………………………..
Expenses
Cost of goods sold …………………………..….
46,300
Depreciation expense—Trucks …………….
6,000
Depreciation expense—Equipment ………
6,100
Wages expense ……………………………………
35,000
Interest expense…………………………………..
Rent expense……………………………………….
9,000
Bad debts expense ………………………………
551
Miscellaneous expenses ………………………
1,241
Repairs expense ………………………………….
8,000
Utilities expense…………………………………..
6,800
Warranty expense ………………………………..
Total expenses …………………………………….
BUG-OFF EXTERMINATORS
Statement of Retained Earnings
For Year Ended December 31, 2019
Retained earnings, December 31, 2018 …………………..
$ 49,700
Add: Net income …………………………………………………..
9,274
58,974
(10,000)
Retained earnings, December 31, 2019 …………………..
$ 48,974
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
570
Comprehensive Problem
Part 4 (concluded)
BUG-OFF EXTERMINATORS
Balance Sheet
December 31, 2019
Assets
Current assets
Cash ……………………………………………………….
$15,750
Accounts receivable ………………………………..
$ 3,321
Allowance for doubtful accounts ……………..
(700)
2,621
Merchandise inventory …………………………..
Total current assets ………………………………..
30,071
Trucks …………………………………………………….
Accumulated depreciation—Trucks …………
Equipment ………………………………………………
Accumulated depreciation—Equipment …..
(18,300)
Total plant assets ……………………………………
Total assets ………………………………………………
Liabilities
Current liabilities
Accounts payable ……………………………………
$ 3,713
Estimated warranty liability ……………………..
Unearned services revenue ……………………..
2,240
Total current liabilities …………………………..
15,000
Equity
Common stock ………………………………………….
10,000
Retained earnings ……………………………………..
48,974
Total equity …………………………..…………………..
58,974
Total liabilities and equity ………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Company Analysis — AA 9-1 (20 minutes)
1. Times interest earned
$ millions
2017
2016
2015
Net income …………………………………………..
$48,351
$45,687
$53,394
Add interest expense …………………………..
2. Good position
Explanation: Apple’s risk of not being able to cover its interest
3. Apple’s balance sheet shows total accrued expenses of $25,744
million.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Comparative Analysis — AA 9-2 (40 minutes)
1. Apple—Times interest earned
$ millions
Current
Year
One Year
Prior
Two Years
Prior
Net income …………………………………………..
$48,351
$45,687
$53,394
Add income taxes ………………………………..
15,738
15,685
19,121
$ millions
Current
Year
One Year
Prior
Two Years
Prior
Net income …………………………………………..
$12,662
$19,478
$16,348
Add income taxes ………………………………..
14,531
4,672
3,303
Add interest expense …………………………..
2. Google
Explanation: Google appears stronger in its ability to pay interest
3. a. Good
b. Good
Explanation: Apple and Google both are in strong positions in their
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
573
Global Analysis — AA 9-3 (30 minutes)
1. Samsung— Times interest earned
KRW in millions
Current Year
Prior Year
Net income ………………………………………….
₩ 42,186,747
₩ 22,726,092
Add income taxes …………………………..
14,009,220
7,987,560
2. Favorable
Explanation: The times interest earned ratio exhibits a favorable
change as it increased in the current year versus the prior year.
3. a. Better
Explanation: Samsung’s times interest earned ratio is better than
b. Worse
Explanation: Samsung’s times interest earned ratio is worse than
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Ethics Challenge — BTN 9-1
1. It is in Bly’s self-interest to maximize the amount of revenues less
warranty expenses so as to maximize his personal bonus. Since Bly
2. Although Bly might be able to affect the amount of revenues less
warranty expenses via the warranty expense accrual in the short run,
over several years the amounts should even out. The dealership
should probably adjust the warranty expense accrual to match the
usual (average) experience over time. Given the variable nature of
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
575
Communicating in Practice — BTN 9-2
MEMORANDUM
To:
Tom Pretti, General Manager
From:
Dusty Johnson, Manager⎯Accounting and Finance
Date:
Subject:
Reporting warranties in financial statements
This memorandum is in response to your comment on my proposal for the
treatment of a contingency in our financial statements. You specifically
object to the proposed recognition of an expense and liability for
Your comment also raised the objection that we don’t know what costs
will be. If they are not reasonably estimable, generally accepted
accounting principles will allow us to leave them out of the financial
statements. But we must describe the contingency in the notes. I will be
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Taking It to the Net — BTN 9-3
1. McDonald’s current liabilities include the following:
• Accounts payable
2. Times interest earned for McDonald’s is
$ millions
Net Income ………………………………………………………
$ 4,686.5
Plus income taxes ……………………………………………
2,179.5
Plus interest expense ……………………………………….
$ 7,750.8
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
577
Teamwork in Action — BTN 9-4
1. Option A: Interest Expense = $6,000 x 10% x 90/360 = $150
Option B: Interest Expense = $6,000 x 8% x 120/360 = $160
2. Entries:
2a. Issue date, Option A
June 1
Cash ………………………………………………………………..
6,000
Notes Payable …………………………………………….
6,000
Borrowed cash by issuing an
interest-bearing note.
Notes Payable …………………………………………….
6,000
Borrowed cash by issuing an
interest-bearing note.
6,000
Interest Expense ………………………………………………
Cash ……………………………………………………….
6,150
Repaid note plus interest.
6,000
Interest Expense ………………………………………………
160
Cash ……………………………………………………….
6,160
Repaid note plus interest.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
578
Teamwork in Action (Concluded)
4. Entries:
4a. Adjusting entry, Option A (Dec. 31)
Dec. 31
Interest Expense ………………………………………………
50
Interest Payable ………………………………………….
50
payable [$6,000 x 10% x 30/360].
Dec. 31
Interest Expense ………………………………………………
Interest Payable ………………………………………….
4c. Maturity date entry, Option A
March 1
Interest Expense ………………………………………………
100
Interest Payable ……………………………………………….
50
Notes Payable ………………………………………………….
6,000
Cash ……………………………………………………….
6,150
Repaid note plus interest.
Interest Expense ………………………………………………
120
Interest Payable ……………………………………………….
40
Notes Payable ………………………………………………….
6,000
Cash ……………………………………………………….
6,160
Repaid note plus interest.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
579
Entrepreneurial Decision — BTN 9-5
1.
Pandora
Income Statement (Prospective)
Current
Operations
European
Total
Sales …………………………………….
$1,000,000
$ 250,000
$1,250,000
2. Times interest earned = $562,500 / $21,000 = 26.8 times
3.
Pandora
Income Statement (Prospective)
Current
Operations
European
Total
Sales ………………………………………
$1,000,000
$ 400,000
$1,400,000
$ 159,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
580
Entrepreneurial Decision (concluded)
4.
Pandora
Income Statement (Prospective)
Current
Operations
European
Total
Sales ……………………………………..
$1,000,000
$ 100,000
$1,100,000
5. In each of these cases, the company’s times interest earned is at least
Hitting the Road — BTN 9-6
There is no formal solution to this problem. A discussion of the