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E11-20 Recording employee and employer payroll taxes
Learning Objective 2
2. Salaries & Wages Payable $17,060.10
District Company had the following partially completed payroll register:
Requirements
1. Complete the payroll register.
2. Journalize District’s wages expense accrual for the current pay period.
3. Journalize District’s expenses for employer payroll taxes for the current pay period.
SOLUTION
Requirement 1
Earnings
Withholdings
Beginning
Cumulative
Earnings
Current
Period
Earnings
Ending
Cumulative
Earnings
OASDI
Medicare
Income
Tax
Health
Insurance
United
Way
Total
Withholdings
Net Pay
Check
No.
Salaries and
Wages
Expense
$ 83,000.00
$ 4,300.00
$ 87,300.00
$ 266.60
$ 62.35
$ 860.00
$ 86.00
$ 20.00
$ 1,294.95
$ 3,005.05
801
$ 4,300.00
E11-20, cont.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Salaries and Wages Expense
24,200.00
Employee Income Taxes Payable
4,840.00
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Payroll Tax Expense
2,075.90
FICA—OASDI Taxes Payable *
1,395.00
E11-21 Accounting for warranty expense and warranty payable
Learning Objective 3
1. Warranty Expense $14,000
The accounting records of Earthtone Ceramics included the following at January 1, 2016:
In the past, Earthtone’s warranty expense has been 8% of sales. During 2016, Earthtone made sales of
$175,000 and paid $9,000 to satisfy warranty claims.
Requirements
1. Journalize Earthtone’s warranty expense and warranty payments during 2016. Explanations are not
required.
2. What balance of Estimated Warranty Payable will Earthtone report on its balance sheet at December
31, 2016?
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
2016
E11-22 Accounting for warranties, vacation, and bonuses
Learning Objective 3
Dec. 31 Employee Bonus Expense $3,283.02
MacDonald Industries completed the following transactions during 2016:
Journalize the transactions (explanations are not required).
SOLUTION
Date
Accounts and Explanation
Debit
Credit
2016
Nov. 1
Warranty Expense (6% × $32,000)
1,920.00
Estimated Warranty Payable
1,920.00
E11-23 Accounting treatment for contingencies
Learning Objective 4
Analyze the following independent situations.
a. Sophia, Inc. is being sued by a former employee. Sophia believes that there is a remote chance that
Determine how each contingency should be treated.
SOLUTION
Situation
Appropriate accounting treatment
E11-24 Computing times-interest-earned ratio
Learning Objective 5
1. Jameson Ratio 120.3 times
The following financial information was obtained from the year ended 2016 income statements for
Jameson Automotive and Bauer Automotive:
Requirements
1. Compute the times-interest-earned ratio for each company.
2. Which company was better able to cover its interest expense?
DOLUTION
Requirement 1
Times-interest-earned ratio
Jameson
Bauer
Net Income
$ 38,100
$ 68,930
Problems (Group A)
P11-25A Journalizing and posting liabilities
Learning Objectives 1, 2
1d. Rent Revenue $2,500
The general ledger of Quick Ship at June 30, 2016, the end of the company’s fiscal year, includes the
following account balances before payroll and adjusting entries.
The additional data needed to develop the payroll and adjusting entries at June 30 are as follows:
a. The long-term debt is payable in annual installments of $60,000, with the next installment due on
July 31. On that date, Quick Ship will also pay one year’s interest at 10%. Interest was paid on July
31 of the preceding year. Make the adjusting entry to accrue interest expense at year-end.
b. Gross unpaid salaries for the last payroll of the fiscal year were $4,500. Assume that employee
income taxes withheld are $900 and that all earnings are subject to OASDI.
c. Record the associated employer taxes payable for the last payroll of the fiscal year, $4,500. Assume
that the earnings are not subject to unemployment.
d. On February 1, the company collected one year’s rent of $6,000 in advance.
Requirements
1. Using T-accounts, open the listed accounts and insert the unadjusted June 30 balances.
2. Journalize and post the June 30 payroll and adjusting entries to the accounts that you opened.
Identify each adjusting entry by letter.
3. Prepare the current liabilities section of the balance sheet at June 30, 2016.
SOLUTION
Requirements 1 and 2
Date
Accounts and Explanation
Debit
Credit
2016
June 30
a.
Interest Expense
27,500.00
Interest Payable ($300,000 × 10% × 11/12)
27,500.00
P11-25A, cont.
Requirements 1 and 2, cont.
Salaries Payable
0 Beg. Bal.
3,255.75 b.
3,255.75 End Bal.
Employee Income Taxes Payable
0 Beg. Bal.
900 b.
900 End Bal.
Unearned Rent Revenue
6,000 Beg. Bal.
d. 2,500
3,500 End Bal.
P11-25A, cont.
Requirement 3
QUICK SHIP
Balance Sheet (Partial)
June 30, 2016
Liabilities
Current Liabilities:
P11-26A Computing and journalizing payroll amounts
Learning Objective 2
1. Net Pay $164,641
Lee Werner is general manager of Stoneybrook Salons. During 2016, Werner worked for the company
all year at a $14,000 monthly salary. He also earned a year-end bonus equal to 15% of his annual salary.
Werner’s federal income tax withheld during 2016 was $980 per month, plus $1,700 on his bonus
check. State income tax withheld came to $60 per month, plus $40 on the bonus. FICA tax was withheld
on the annual earnings. Werner authorized the following payroll deductions: Charity Fund contribution
of 2% of total earnings and life insurance of $35 per month.
Stoneybrook incurred payroll tax expense on Werner for FICA tax. The company also paid state
unemployment tax and federal unemployment tax.
Requirements
1. Compute Werner’s gross pay, payroll deductions, and net pay for the full year 2016. Round all
amounts to the nearest dollar.
2. Compute Stoneybrook’s total 2016 payroll tax expense for Werner.
3. Make the journal entry to record Stoneybrook’s expense for Werner’s total earnings for the year, his
payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit
liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.
4. Make the journal entry to record the accrual of Stoneybrook’s payroll tax expense for Werner’s total
earnings.
SOLUTION
Requirement 1
Lee Werner
Payroll for the year ended December 31, 2016
Calculation
Annual
Gross Pay:
Salary
$14,000 × 12
$ 168,000
Requirement 2
Lee Werner
Employer Payroll Expense for the year ended December 31, 2016
Calculation
Annual
Total Gross Pay
$ 193,200
P11-26A, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
2016
Dec. 31
Salaries Expense
168,000
Bonus Expense
25,200
Requirement 4
Date
Accounts and Explanation
Debit
Credit
2016
Dec. 31
Payroll Tax Expense
10,475
P11-27A Journalizing liability transactions
Learning Objectives 1, 3
Jan. 29 Cash $17,490
The following transactions of Houston Pharmacies occurred during 2015 and 2016:
Journalize the transactions in Houston’s general journal. Explanations are not required.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
2015
Jan. 9
Computer Equipment
13,000
Short-term Notes Payable
13,000
P11-28A Journalizing liability transactions
Learning Objectives 3, 4
1. June 30 Warranty Expense $8,400
The following transactions of Oscar Landing occurred during 2016:
Requirements
1. Journalize required transactions, if any, in Landing’s general journal. Explanations are not required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
2016
Apr. 30
No entry required
Requirement 2
Estimated Warranty Payable
P11-29A Computing times-interest-earned ratio
Learning Objective 5
1. Net Income $10,950
The income statement for Utah Communications follows. Assume Utah Communications signed a 120-
day, 12%, $4,000 note on June 1, 2016, and that this was the only note payable for the company.
Requirements
1. Fill in the missing information for Utah’s year ended July 31, 2016, income statement.
2. Compute the times-interest-earned ratio for the company.
SOLUTION
Requirement 1
UTAH COMMUNICATIONS
Income Statement
Year Ended July 31, 2016
Sales Revenue
$ 33,000
Interest Expense = $4,000 × 12% × 60/360 = $80
Requirement 2
Times-interest-earned ratio
Net Income
$ 10,950
