Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Chapter 9
Accounting for Current Liabilities
QUESTIONS
1. A current liability is expected to be paid within one year or the company’s operating
2. An estimated liability is an obligation to make a future payment, the exact amount of
which is uncertain, but it is capable of being reasonably estimated.
5. The Medicare tax rate is 1.45%. This rate is applied to all wages earned by an
employee—no maximum limit exists.
6. The employee is responsible for federal income taxes, state income taxes, local
7. An employee’s gross earnings along with the number of withholding allowances that
8. An unemployment merit rating is based on an evaluation of an employer’s
experience in creating or avoiding unemployment with its employees. The merit
9. The obligation to correct or replace defective products (or services) is created when
the products are sold with the warranties. Even though the seller does not know
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
10. There are no conditions in which a probable loss tied to a future event can create a
11.A A wage bracket withholding table shows for a pay period of a given length (weekly,
12.A Single employee earning $725 with two allowances has $76 taxes withheld.
Single employee earning $625 with no allowances has $81 taxes withheld.
13. Apple reports accounts payable of $49,049 million.
14. Google reports the following accrued expenses:
15. Samsung reports the following current liabilities: Trade payables; Short-term
16. Samsung’s current liabilities include one income-tax-related liability titled: Income
tax payable. This account reflects taxes that must be paid to the government in the
short term.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
QUICK STUDIES
Quick Study 9-1 (5 minutes)
Items 1, 4, 5 and 6 are current liabilities for this company.
Quick Study 9-2 (10 minutes)
1.
Sept. 30
Cash ………………………………………………………………..
6,300
Sales Taxes Payable …………………………..
300
Record cash sales and 5% sales tax.
Sept. 30
3,900
Merchandise Inventory …………………………..
3,900
Record cost of Sept. 30 sales.
2.
Oct. 15
Sales Taxes Payable ………………………………………..
300
Cash ……………………………………………………….
300
Record payment of sales taxes to govt.
Quick Study 9-3 (10 minutes)
Oct. 31
Cash ………………………………………………………………..
5,000,000
Unearned Ticket Revenue …………………………..
Unearned Ticket Revenue …………………………..
Earned Ticket Revenue …………………………..
Quick Study 9-4 (15 minutes)
1. Computation of interest payable at December 31:
2.
Dec.31
Interest Expense ………………………………………………
1,920
Interest Payable …………………………………………
1,920
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Quick Study 9-4 (concluded)
3.
Feb. 5
Interest Expense ………………………………………………
1,280
Interest Payable ……………………………………………….
1,920
Notes Payable ………………………………………………….
Cash ……………………………………………………….
Quick Study 9-5 (15 minutes)
Jan. 15
Salaries Expense ……………………………………………..
35,000.00
FICA—Social Sec. Taxes Payable* ………………
2,170.00
FICA—Medicare Taxes Payable** ………………..
Employee Fed. Inc. Taxes Payable ………………
6,500.00
Employee Medical Insurance Payable ………….
Employee Union Dues Payable ……………………
Salaries Payable …………………………………………
Quick Study 9-6 (15 minutes)
Note: Two months (January and February) of earnings have
already been recorded for each of the 10 employees.
Mar. 31
Payroll Taxes Expense ……………………………………..
2,730
1,240
1,080
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Quick Study 9-7 (5 minutes)
Employee Bonus Expense ………………………………..
15,000
Bonus Payable ………………………………………….
Quick Study 9-8 (5 minutes)
Dec. 31
Vacation Benefits Expense ……………………………….
8,000
Vacation Benefits Payable …………………………
Apr. 1
Vacation Benefits Payable …………………………..……
Cash ……………………………………………………….
Quick Study 9-9 (10 minutes)
Sept. 1
Cash ………………………………………………………………..
500
Sales …………………………………………………………..
500
Record mower sales.
Sept. 1
Merchandise Inventory ………………………………..
Record cost of mower sales.
Sept. 1
Warranty Expense ……………………………………………
Estimated Warranty Liability ………………………..
Record estimated warranty expense. $500 x 8%
Estimated Warranty Liability …………………………..
Repair Parts Inventory …………………………………
Record cost of warranty repairs.
Quick Study 9-10 (10 minutes)
Dec. 31
Employee Benefits Expense ……………………………..
14,500
Employee Medical Insurance Payable ………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Quick Study 9-11 (10 minutes)
1. (a); reason—it is reasonably estimated and is a probable loss.
Quick Study 9-12 (10 minutes)
a.
Times interest earned = = 13.0 times
b. Better position.
Quick Study 9-13A (15 minutes)
Federal Income Tax
Quick Study 9-14A (15 minutes)
Gross Pay ……………………………………………………………………
$740.00
$45.88
160.01
Quick Study 9-15B (10 minutes)
Dec. 31
Income Taxes Expense …………………………..………..
40,000
$1,885,000
$145,000
Income Taxes Payable ………………………………..
Deferred Income Tax Liability ……………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
EXERCISES
Exercise 9-1 (10 minutes)
Exercise 9-2 (10 minutes)
1.
July 15
Cash ………………………………………………………………..
10,400
Sales ………………………………………………………….
10,000
July 15
400
2.
Nov. 3
Cash ………………………………………………………………..
300
Unearned Ticket Revenue …………………………..
300
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
532
Exercise 9-3 (30 minutes)
1. Maturity date = May 15 + 60 days = July 14
2a.
May 15
Cash ………………………………………………………………..
110,000
Notes Payable …………………………………………….
110,000
Borrowed cash by issuing an interest-bearing note.
July 14
Interest Expense* …………………………………………….
Notes Payable ………………………………………………….
110,000
Cash …………………………………………………………..
112,200
Exercise 9-4 (30 minutes)
1. Maturity date = November 1 + 90 days = January 30.
2.
Principal ………………………………………………
$200,000
x Interest rate ………………………………………
x Fraction of year (Nov. 1 – Dec. 31) ……..
3.
Principal ………………………………………………
$200,000
x Interest rate ………………………………………
x Fraction of year (Jan. 1 – Jan. 30) ………
4a.
Nov. 1
Cash ………………………………………………………………..
200,000
Notes Payable …………………………………………….
200,000
Borrowed cash by issuing an interest-bearing note.
Dec. 31
Interest Expense ………………………………………………
3,000
Interest Payable ………………………………………….
Accrued interest on note payable.
Interest Expense ………………………………………………
Interest Payable ……………………………………………….
Notes Payable ………………………………………………….
200,000
Cash …………………………………………………………..
204,500
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Exercise 9-5 (20 minutes)
Subject
to Tax
Rate
Tax
Explanation
a.
FICA—Social Security ……
$ 800
6.20%
$ 49.60
Full amount is subject to tax.
FICA—Medicare ……………
1.45%
Full amount is subject to tax.
$200 is over the maximum.
SUTA …………………………....
$200 is over the maximum.
FICA—Medicare ……………
1.45%
Full amount is subject to tax.
2,100
Full amount is subject to tax.
SUTA …………………………....
Full amount is subject to tax.
c.
FICA—Social Security ……
$6,300
6.20%
$390.60
$1,700 is over the maximum.
FICA—Medicare ……………
8,000
1.45%
116.00
Full amount is subject to tax.
Full amount is over maximum.
Exercise 9-6 (10 minutes)
Sept. 30
Salaries Expense ……………………………………………..
800.00
FICA—Social Security Taxes Payable ………….
49.60
FICA—Medicare Taxes Payable …………………..
11.60
Employee Federal Income Taxes Payable ………
80.00
Salaries Payable …………………………………………
Exercise 9-7 (10 minutes)
Sept. 30
Payroll Taxes Expense ……………………………………..
97.20
FICA—Social Security Taxes Payable ………….
49.60
FICA—Medicare Taxes Payable …………………..
11.60
Federal Unemployment Taxes Payable ………..
State Unemployment Taxes Payable ……………
32.40
Employee Medical Insurance Payable ……………….
Employee Life Insurance Payable ……………………..
Employee Union Dues Payable ………………………….
Exercise 9-8 (30 minutes)
1. July 31
Sales Salaries Expense …………………………………….
200,000
Office Salaries Expense ……………………………………
160,000
FICA—Social Sec. Taxes Payable ………………..
22,320
FICA—Medicare Taxes Payable ……………………
5,220
Employee Fed. Inc. Taxes Payable ……………….
90,000
Employee State Inc. Taxes Payable ……………..
20,000
Employee Medical Insurance Payable* …………
2,800
Employee Life Insurance Payable** ……………..
1,600
Employee Union Dues Payable …………………….
1,000
Salaries Payable ………………………………………….
217,060
2. July 31
Salaries Payable ……………………………………………….
217,060
Cash ……………………………………………………….
217,060
Record payment of payroll.*
*Check numbers may be entered in the Payroll Register.
3. July 31
Payroll Taxes Expense ……………………………………..
30,540
FICA⎯Social Sec. Taxes Payable ………………..
22,320
FICA⎯Medicare Taxes Payable ……………………
5,220
State Unemployment Taxes Payable…………….
2,700
Federal Unemployment Taxes Payable ………..
Employee Benefits Expense …………………………..
6,600
Employee Medical Insurance Payable* …………
4,200
Employee Life Insurance Payable** ……………..
2,400
4. July 31
FICA⎯Social Security Taxes Payable………………..
44,640
FICA⎯Medicare Taxes Payable …………………………
10,440
Employee Fed. Income Taxes Payable. ……………..
90,000
Employee State Income Taxes Payable. …………….
20,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
535
Exercise 9-9 (30 minutes)
a.
Employee
Cumulative
Pay
Pay Subject to
FICA Social
Security
Pay Subject
to FICA
Medicare
Pay Subject
to FUTA
Taxes
Pay Subject
to SUTA
Taxes
Ken S ……………….
$ 6,000
$ 6,000
$ 6,000
$ 6,000
$ 6,000
Tim V ………………..
40,400
40,400
40,400
7,000
7,000
7,000
7,000
7,000
7,000
b. FICA Social Security taxes
$82,633.60 = $666,400 x 6.2% x 2 (for employer and employee)
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Exercise 9-10 (25 minutes)
2. The balance of the liability on December 31 of Year 1 equals the
3. The balance of the Estimated Warranty Liability on December 31 of
Year 2 account equals the Year 2 beginning balance minus the costs
4. Journal entries
(a)
Aug. 16
Cash ………………………………………………………………..
6,000
Sales ………………………………………………………….
6,000
Record cash sale of copier.
Aug. 16
4,800
Merchandise Inventory ……………………………….
4,800
Record cost of August 16 sale.
Warranty Expense ……………………………………………
Estimated Warranty Liability ……………………….
Record warranty expense for copier sold.
Estimated Warranty Liability …………………………….
Repair Parts Inventory ………………………………..
Record cost of warranty repairs.
Exercise 9-11 (15 minutes)
1.
Dec. 31 Employee Bonus Expense ………………………….. 14,563
Exercise 9-12 (10 minutes)
1.
Vacation Benefits Expense …………………………………….
13,000
2.
Warranty Expense………………………………………………….
18,000
Exercise 9-13 (10 minutes)
1.
Dec. 31
Employee Benefits Expense ……………………………..
19,500
2. Long-term liability.
Explanation: Estimated liabilities can be both current and long term.
Exercise 9-14 (10 minutes)
1. (b) Disclose in Notes.
2. (b) Disclose in Notes.
Explanation: No liability is recorded because the loss cannot be reasonably
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
538
Exercise 9-15 (15 minutes)
LUE CO.
Balance Sheet
December 31
Assets
Current assets
Cash ……………………………………………………………… $50,000
Liabilities
Current liabilities
Salaries payable ……………………………………………. $34,000
Employee federal income taxes payable ………… 9,000
Current portion of long-term debt ………………….. 4,000
Equity
Total equity ………………………………………………………. 30,000
Total liabilities and equity …………………………………. $95,100
Gross pay ………………………………………………………………..
Income tax deduction (from Exhibit 9A.6) ……………………
Total deductions ………………………………………………………
Exercise 9-16 (15 minutes)
(a)
(b)
(c)
(d)
Numerator
Income before interest & taxes ……
$198,000
$176,000
$180,000
$378,000
Denominator
$ 44,000
$ 16,000
$ 12,000
$ 14,000
Exercise 9-17B (25 minutes)
1.
Income Taxes Payable (target balance) ………………………………………..
$28,300
Total accrued [($28,600 + $19,100 + $34,600) x .30] ……………………….
Adjustment (additional expense) ………………………………………………….
$ 3,610
2.
(a)
Dec. 31
Income Tax Expense …………………………………………
3,610
Income Taxes Payable …………………………………
Jan. 20
Income Taxes Payable ………………………………………
Cash ……………………………………………………………
Exercise 9-18A (15 minutes)
Regular pay (40 hours @ $14) …………………………………….
$560.00
Overtime premium pay (8 hours @ $21) ………………………
168.00
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Exercise 9-19A (30 minutes)
(a)
Employee
Cumulative
Pay (Excludes
Current Period)
Current Period Gross Pay
FIT
Withholding
FUTA
FICA S.S.
Employee
FICA
Medicare
Employee
Employee—
Benefits Plan
Withholding
Employee
Net Pay
(Current
Period)
Pay
Type
Pay
Hours
Gross Pay
SIT
Withholding
SUTA
FICA S.S.
Employer
FICA
Medicare
Employer
Employer—
Benefits Plan
Expense
Kathleen
126,600.00
Salary
—
7,000.00
2,000.00
0.00
111.60
101.50
350.00
4,136.90
300.00
0.00
111.60
101.50
700.00
0.00
Overtime
8
920.00
25.00
57.04
13.34
92.00
Zoey
6,500.00
Regular
80
800.00
100.00
3.00
53.32
12.47
43.00
629.21
Overtime
4
60.00
860.00
22.00
27.00
53.32
12.47
86.00
4.44
740.00
2,380.00
8.64
298.84
145.29
501.00
145.29
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
541
Exercise 9-19A (concluded)
(b)
Aug 31
Salaries (or Wages) Expense …………………………..
10,020.00
FICA—Social Sec. Taxes Payable ………………..
298.84
Employee Fed. Inc. Taxes Payable ……………….
2,380.00
Employee State Inc. Taxes Payable ……………..
388.00
Employee Benefits Plan Payable ………………….
501.00
Salaries Payable ………………………………………….
6,306.87
Record payroll for period.
(c)
Aug 31
Salaries (or Wages) Payable …………………………..
6,306.87
Cash ……………………………………………………….
6,306.87
Record payment of payroll.
(d)
Aug 31
Payroll Taxes Expense ……………………………………..
530.53
145.29
Federal Unemployment Taxes Payable ………..
State Unemployment Taxes Payable…………….
Aug 31
Employee Benefits Expense …………………………..
Employee Benefits Plan Payable ………………….
1,002.00
(e)
Aug 31
FICA⎯Social Security Taxes Payable………………..
597.68
FICA⎯Medicare Taxes Payable …………………………
290.58
Employee Fed. Income Taxes Payable. ……………..
2,380.00
Employee State Income Taxes Payable. …………….
Cash ……………………………………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
PROBLEM SET A
Problem 9-1A (45 minutes)
Locust
NBR Bank
Fargo Bank
1.
Maturity dates
Term of the note (in days) ………….
Maturity date …………………………..
2.
Interest due at maturity
Principal of the note ………………….
$35,000
$80,000
$42,000
120/360
$ 875
$ 2,400
$ 560
3.
Accrued interest on Fargo note at the end of Year 1
Total interest for note …………………………………………….
$ 560
Accrued interest expense ………………………………………
$ 308
4.
Interest on Fargo note in Year 2
Total interest for note …………………………………………….
$ 560
$ 252
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
Problem 9-1A (Concluded)
5.
Apr. 20
Merchandise Inventory …………………………………….
40,250
Accounts Payable—Locust …………………………
40,250
Purchased merchandise on credit.
Accounts Payable—Locust ………………………………
40,250
Cash …………………………………………………………..
Notes Payable—Locust ……………………………….
35,000
80,000
Notes Payable—NBR …………………………………..
80,000
Borrowed cash with a 120-day, 9% note.
Interest Expense ………………………………………………
Notes Payable—Locust …………………………………….
35,000
Cash …………………………………………………………..
35,875
Paid note with interest.
Nov. 5
Interest Expense ………………………………………………
2,400
Notes Payable—NBR ………………………………………..
80,000
Cash …………………………………………………………..
82,400
Paid note with interest.
42,000
Notes Payable—Fargo Bank ………………………..
42,000
Borrowed cash with 60-day, 8% note.
Interest Expense ………………………………………………
Interest Payable ………………………………………….
Jan. 27
Interest Expense ………………………………………………
Notes Payable—Fargo Bank ……………………………..
42,000
Interest Payable ……………………………………………….
Cash …………………………………………………………..
42,560
Paid note with interest.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 9
544
Problem 9-2A (25 minutes)
Part 1
Jan. 8
Office Salaries Expense ……………………………………
22,760.00
Sales Salaries Expense …………………………………….
65,840.00
FICA—Social Sec. Taxes Payable* ………………
5,493.20
FICA—Medicare Taxes Payable** ………………..
1,284.70
Employee Fed. Inc. Taxes Payable ………………
12,860.00
Employee Union Dues Payable ……………………
Salaries Payable …………………………………………
66,782.10
Part 2
Jan. 8
Payroll Taxes Expense ……………………………………..
12,093.90
FICA—Social Sec. Taxes Payable ………………..
5,493.20
FICA—Medicare Taxes Payable …………………..
1,284.70
State Unemployment Taxes Payable* …………..
Federal Unemployment Taxes Payable** ………..