Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
587
Chapter 9
Accounting for Current Liabilities
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)
ORGANIC FOODS
Liabilities Section of Balance Sheet
December 31
Current liabilities
Quick Study 9-3 (10 minutes)
1.
Sept. 30
Cash ……………………………………………………..
6,300
Sales Taxes Payable …………………………
300
Record cash sales and 5% sales tax.
Merchandise Inventory ……………………..
Record cost of Sept. 30 sales.
2.
Oct. 15
Sales Taxes Payable ………………………………
300
Cash ………………………………………………..
300
Record payment of sales taxes to govt.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Quick Study 9-4 (10 minutes)
Oct. 31
Cash ……………………………………………………..
5,000,000
Unearned Ticket Revenue …………………
Unearned Ticket Revenue ………………………
1,250,000
Ticket Revenue …………………………………
Quick Study 9-5 (15 minutes)
1. Computation of interest payable at December 31:
Days from November 7 to December 31 …………..
Accrued interest (8% x $160,000 x 54/360) ……….
2.
Dec.31
Interest Expense ……………………………………..
1,920
Interest Payable …………………………………
1,920
Record accrued interest (8% x $160,000 x 54/360).
3.
Feb. 5
Interest Expense ………………………………………..
1,280
Interest Payable ………………………………………….
1,920
Notes Payable …………………………………………….
Cash …………………………………………………….
Quick Study 9-6 (10 minutes)
Gross Pay ………………………………………………
$4,000
FICA Social Security (6.2% x $4,000)……..
$248
FICA Medicare (1.45% x $4,000) …………….
Medical insurance deduction ………………..
Total deductions …………………………………..
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Quick Study 9-7 (10 minutes)
Jan. 31
Salaries Expense ………………………………………..
4,000
FICA—Social Security Taxes Payable …….
FICA—Medicare Taxes Payable ……………..
Employee Federal Income Taxes Payable
Employee Medical Insurance Payable …….
Salaries Payable ……………………………………
Quick Study 9-8 (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 9-9 (10 minutes)
Jan. 31
Payroll Taxes Expense ………………………………….
819
FICA—Social Security Taxes Payable ……….
372
FICA—Medicare Taxes Payable ………………..
Federal Unemployment Taxes Payable ……..
State Unemployment Taxes Payable …………
324
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Quick Study 9-10 (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
FICA—Social Security Taxes Payable1 ………
1,240
FICA—Medicare Taxes Payable2 ……………….
State Unemployment Taxes Payable3 ………..
1,080
Quick Study 9-11 (5 minutes)
Employee Bonus Expense …………………………...
Bonus Payable ……………………………………..
Quick Study 9-12 (5 minutes)
Dec. 31
Vacation Benefits Expense …………………………..
8,000
Vacation Benefits Payable …………………….
8,000
Apr. 1
Vacation Benefits Payable …………………………...
Cash …………………………………………………….
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Quick Study 9-13 (10 minutes)
Dec. 1
Cash ……………………………………………………………
500
Sales ……………………………………………………….
500
Record mower sales.
Dec. 1
Merchandise Inventory …………………………….
Record cost of mower sales.
Dec. 31
Warranty Expense ………………………………………..
Estimated Warranty Liability …………………….
Record estimated warranty expense. $500 x 8%
Estimated Warranty Liability …………………………
Parts Inventory ………………………………………..
Record cost of warranty repairs.
Quick Study 9-14 (10 minutes)
Dec. 31
Employee Benefits Expense …………………………
14,500
Employee Medical Insurance Payable ……..
Quick Study 9-15 (10 minutes)
1. Record a liability; reason—it is reasonably estimated and is a probable
loss.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
592
Quick Study 9-16 (15 minutes)
RUSSEL CO.
Liabilities Section of Balance Sheet
December 31
Current liabilities
Accounts payable ………………………………………….. $ 2,600
Salaries payable ……………………………………………. 17,000
Quick Study 9-17 (10 minutes)
a.
Times interest earned = = 13.0 times
b. Better position.
Explanation: Park Company’s times interest earned ratio of 13.0 exceeds (is
$1,885,000
$145,000
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Quick Study 9-18A (15 minutes)
Employee
Federal Income Tax
Withholding
Maria ……………………
Jeff ………………………
Quick Study 9-19A (15 minutes)
Gross Pay …………………………..………………………………………..
$740.00
Quick Study 9-20B (10 minutes)
Dec. 31
Income Taxes Expense………………………………….
40,000
Income Taxes Payable ……………………………..
Deferred Income Tax Liability …………………..
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
EXERCISES
Exercise 9-1 (10 minutes)
1.
Long-term liability
6.
Current liability
3.
Long-term liability
8.
Current liability
Exercise 9-2 (10 minutes)
1.
July 15
Cash ……………………………………………………………
10,400
Sales ………………………………………………………
10,000
Sales Taxes Payable …………………………..…..
400
Record sales and sales taxes.
July 15
Merchandise Inventory …………………………….
Sales Taxes Payable …………………………..………..
400
Cash ………………………………………………………
400
Record sending of sales taxes to govt.
2.
Nov. 3
Cash ……………………………………………………………
300
Unearned Ticket Revenue ……………………….
300
Record sales in advance of games.
Unearned Ticket Revenue …………………………….
Ticket Revenue* ……………………………………..
Record revenue earned. *[$300 x (1/6)]
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
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Exercise 9-3 (15 minutes)
1.
Assets
=
Liabilities
+
Equity
July 15
Cash
+10,400
Sales Taxes
Payable
+400
Sales
+10,000
Assets
=
Liabilities
+
Equity
July 15
Assets
=
Liabilities
+
Equity
2.
Assets
=
Liabilities
+
Equity
Nov. 3
Cash
+300
Assets
=
Liabilities
+
Equity
Unearned
Ticket
+300
Exercise 9-4 (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
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Exercise 9-5 (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 ……………………………………
4a.
Nov. 1
Cash ……………………………………………………………
200,000
Notes Payable …………………………………………
200,000
Borrowed cash by issuing an interest-bearing note.
4b.
Dec. 31
Interest Expense ………………………………………….
3,000
Interest Payable ………………………………………
Accrued interest on note payable.
Interest Expense ………………………………………….
200,000
Cash ………………………………………………………
204,500
Exercise 9-6 (10 minutes)
1.
Mar. 1
Accounts Payable—Tyson ……………………
1,200
Cash ……………………………………………….
200
Notes Payable—Tyson …………………….
2.
Sept. 27
Interest Expense* …………………………………
40
Notes Payable—Tyson ………………………….
1,000
Cash ……………………………………………….
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Exercise 9-7 (20 minutes)
Subject
to Tax
Rate
Tax
Explanation
a.
FICA—Social Security ….
$ 800
6.20%
$ 49.60
Full amount is subject to tax.
SUTA …………………………...
$200 is over the maximum.
b.
FICA—Social Security ….
$2,100
6.20%
$130.20
Full amount is subject to tax.
FICA—Medicare ………….
1.45%
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.
Exercise 9-8 (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 9-9 (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
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Exercise 9-10 (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
Employee Medical Insurance Payable …………
Employee Life Insurance Payable ……………….
Employee Union Dues Payable …………………..
599
Exercise 9-11 (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
137,700
7,000
7,000
7,000
7,000
b. FICA Social Security taxes
$86,093.20 = $694,300 x 6.2% x 2 (for employer and employee)
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Exercise 9-12 (25 minutes)
1. Warranty Expense = 4% of dollar sales = 4% x $6,000 = $240
2. The balance of the liability on December 31 of Year 1 equals the expense
3. The balance of the Estimated Warranty Liability on December 31 of Year
2 account equals the Year 2 beginning balance minus the costs incurred
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 ………………………….
Parts Inventory ………………………………………..
Record cost of warranty repairs.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
601
Exercise 9-13 (15 minutes)
a.
Assets
=
Liabilities
+
Equity
Aug 16
Cash
+6,000
Sales
+6,000
Assets
=
Liabilities
+
Equity
Aug 16
b.
Assets
=
Liabilities
+
Equity
Dec 31
Estimated
Warranty Liability
+240
Warranty
Expense
–240
Assets
=
Liabilities
+
Exercise 9-14 (15 minutes)
1.
Dec. 31 Employee Bonus Expense ………………………….. 14,563
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Exercise 9-15 (10 minutes)
1.
Vacation Benefits Expense ………………………………..
13,000
Vacation Benefits Payable …………………………….
13,000
2.
Warranty Expense ……………………………………………..
18,000
Estimated Warranty Liability …………………………
Exercise 9-16 (10 minutes)
1.
Dec. 31
Employee Benefits Expense …………………………
19,500
Employee Medical Insurance Payable ……..
2. Long-term liability.
Explanation: Estimated liabilities can be both current and long term.
Exercise 9-17 (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 and Managerial Accounting 9e Solutions Manual: Chapter 9
603
Exercise 9-18 (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
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Exercise 9-19 (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 9-20A (15 minutes)
Regular pay (40 hours @ $14) …………………………………
$560.00
Overtime premium pay (8 hours @ $21) ………………….
168.00
Exercise 9-21A (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
135,900.00
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
606
Exercise 9-21A (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 ……………………………………………………