Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Problem 9-5B (Concluded)
5. Sales decrease by 50% (multiply prior sales by 0.50)
Ellis Co.
Seidel Co.
Sales ………………………………….
$120,000
$120,000
Variable expenses ………………
60,000
90,000
Income before interest ………..
90,000
30,000
6. Seidel Company
Explanation: Having fewer fixed costs better ‘protects’ the company if
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Problem 9-6BA (50 minutes)
June 15
FICA—Social Security Taxes Payable …………
992
Employee Fed. Income Taxes Payable ………..
1,050
Cash …………………………………………………….
30
Office Salaries Expense ……………………………..
3,800
Shop Salaries Expense……………………………….
4,200
FICA—Social Security Taxes Payable ……
FICA—Medicare Taxes Payable ……………..
Employee Fed. Income Taxes Payable …..
Salaries Payable ……………………………………
30
Salaries Payable …………………………………………
6,338
Cash …………………………………………………….
6,338
30
Payroll Taxes Expense* ………………………………
612
FICA⎯Social Security Taxes Payable ……
496
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
629
Problem 9-6BA (Concluded)
July 15
FICA⎯Social Security Taxes Payable …………
992
FICA⎯Medicare Taxes Payable …………………..
232
Employee Fed. Income Taxes Payable ………..
federal income taxes.
15
Cash …………………………………………………….
Record payment of SUTA taxes.
31
Federal Unemployment Taxes Payable ……….
66
Cash …………………………………………………….
66
Record payment of FUTA taxes.
31
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
630
Serial Problem — SP 9
Serial Problem — Business Solutions (30 minutes)
1.
Gross pay (8 days x $125 per day) …………………………..
$1,000.00
FICA Social Security tax deduction (6.2%)* ……………..
$ 62.00
FICA Medicare tax deduction (1.45%) ………………………
Income tax deduction ……………………………………………..
Total deductions …………………………………………………….
2.
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.
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.
Mar. 25
Accounts Receivable – Wildcat Services …….
2,912
Sales …………………………………………………….
2,800
Sales Taxes Payable ……………………………..
112
Mar. 25
2,002
Merchandise Inventory ………………………….
2,002
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
631
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)
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 ……………………..
(8,000)
Depreciable cost …………………………
$24,000
Useful life (years) ……………………….
Annual depreciation for 2021 ………
$ 6,000
d. Depreciation expense on the equipment
Sprayer
Injector
Cost …………………………………………..
$27,000
$18,000
Less salvage value ……………………..
(3,000)
(2,500)
Useful life (years) ……………………….
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
632
Comprehensive Problem (Continued)
e. Adjusted revenue and unearned revenue balances
Total advance received ………………………………..
$ 3,840
Months in contract ………………………………………
12
Revenue per month ……………………………………..
Months of services provided ………………………..
Total earned ($320 x 5 months) …………………….
(1,600)
Overstatement of revenue ($3,840 – $1,600) …
$ 2,240
Extermination Services Revenue account
$60,000
Overstatement …………………………………………….
(2,240)
$57,760
Unearned Services Revenue account
Adjustment ………………………………………………….
$ 2,240
f. Warranty expense
Adjusted services revenue for the year (from e) …
$57,760
Warranty percent …………………………………………
2.5%
Warranty expense (estimated) ……………………..
$ 1,444
$ 1,400
g. Note payable and interest accrual
The note originated on December 31, 2021. The first time interest
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
633
Comprehensive Problem (Continued)
Part 2
BUG-OFF EXTERMINATORS
December 31, 2021
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
Accum. deprec.–Trucks..
0
(c)
6,000
6,000
Equipment …………………….
45,000
Accum. deprec.–Equip …
12,200
6,100
18,300
Accounts payable …………
5,000
(a)
3,713
Estim. warranty liability …
(f)
1,400
1,444
2,844
Unearned services rev ….
0
(e)
2,240
2,240
Interest payable ……………
0
0
Long–term notes payable
15,000
15,000
Common stock ……………..
20,000
20,000
Dividends ……………………….
10,000
Interest revenue ……………
(a)
Sales ……………………………..
71,026
71,026
Cost of goods sold ……….
46,300
Deprec. expense–Trucks
0
(c)
6,000
Deprec. expense–Equip..
0
6,100
Wages expense …………….
35,000
Interest expense ……………
0
0
Rent expense ………………..
9,000
9,000
Bad debts expense ……….
0
(b2)
551
551
Miscellaneous expense ..
1,226
(a)
15
1,241
Repairs expense …………..
8,000
8,000
Utilities expense ……………
6,800
6,800
Warranty expense …………
0
_______
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
634
Comprehensive Problem (Continued)
Part 3
(a)
Miscellaneous Expenses …………………………………..
15
Accounts Payable …………………………………………….
1,287
Adjust cash account. (Separate entries are acceptable.)
(b1)
Allowance for Doubtful Accounts ……………………..
679
(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 …………………..
6,100
Depreciation on equipment.
(e)
Extermination Services Revenue ………………………
2,240
Unearned Services Revenue ………………………..
2,240
Adjust for unearned revenues.
Warranty Expense …………………………………………….
1,444
Estimate warranty expense.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Comprehensive Problem (Continued)
Part 4
BUG-OFF EXTERMINATORS
Income Statement
For Year Ended December 31, 2021
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, 2021
Retained earnings, December 31, 2020 …………….
$ 39,700
Add: Net income ……………………………………………
9,274
48,974
Retained earnings, December 31, 2021 …………….
$ 38,974
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
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Comprehensive Problem
Part 4 (concluded)
BUG-OFF EXTERMINATORS
Balance Sheet
December 31, 2021
Assets
Current assets
Cash ……………………………………………………
$15,750
Accounts receivable …………………………….
$ 3,321
Allowance for doubtful accounts ………….
(700)
2,621
Merchandise inventory …………………………
11,700
Total current assets ……………………………..
Trucks …………………………………………………
Accumulated depreciation—Trucks ………
Equipment ……………………………………………
Accumulated depreciation—Equipment ..
(18,300)
Total plant assets …………………………………
52,700
Total assets ……………………………………………
Liabilities
Current liabilities
Accounts payable ………………………………..
$ 3,713
Estimated warranty liability ………………….
2,844
Unearned services revenue ………………….
2,240
Total current liabilities ………………………….
15,000
Equity
Common stock ………………………………………
20,000
Retained earnings ………………………………….
38,974
Total equity ……………………………………………
58,974
Total liabilities and equity ………………………
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 9
Company Analysis — AA 9-1 (20 minutes)
1. Times interest earned
$ millions
2019
2018
2017
Net income …………………………………..
$55,256
$59,531
$48,351
Add income taxes …………………………
10,481
13,372
15,738
Add interest expense ……………………
2. Good position
Explanation: Apple’s risk of not being able to cover its interest expense
grew over this period as evidenced by its decreasing times interest