EXERCISE 13-6 (Continued)
(b)
Accrued liability at year-end:
2013
2014
Jan. 1 balance
$ 0
$7,740
+ accrued
Dec. 31 balance
(1)
(2)
(2)
9 employees X $10.75/hr. X 8 hrs./day X 1 day =
EXERCISE 13-7 (5–7 minutes)
June 30
Sales Revenue ………………………………………………………..
21,900
Sales Tax Payable …………………………………………..
21,900
Computation:
Sales plus sales tax ($233,200 + $153,700)
Sales exclusive of tax ($386,900 ÷ 1.06)
EXERCISE 13-8 (10–15 minutes)
Salaries and Wages Expense …………………………………..
480,000
Withholding Taxes Payable ……………………………..
FICA Taxes Payable* ……………………………………….
Union Dues Payable ………………………………………..
9,000
Cash ………………………………………………………………
*[($480,000 – $110,000) X 7.65% = $28,305
$110,000 X 1.45% = $1,595; $28,305 + $1,595 = $29,900
EXERCISE 13-8 (Continued)
Payroll Tax Expense ………………………………………………..
31,500
FICA Taxes Payable ………………………………………..
29,900
(See previous computation.)
FUTA Taxes Payable ……………………………………….
[($480,000 – $400,000) X .8%)
[$80,000 X (3.5% – 2.3%)]
EXERCISE 13-9 (15–20 minutes)
(a)
Computation of taxes
Factory
Wages
$120,000
Social security taxes (FICA)
9,180
(7.65% X $120,000)
Federal unemployment taxes
320
(.8% X $40,000)
State unemployment taxes
1,000
(2.5% X $40,000)
Total Cost
$130,500
Sales
Wages
$32,000
Social security taxes (FICA)
1,208*
Federal unemployment taxes
32
(.8% X $4,000)
State unemployment taxes
(2.5% X $4,000)
Total Cost
Administrative
Wages
$36,000
Social security taxes (FICA)
2,754
(7.65% X $36,000)
Federal unemployment taxes
State unemployment taxes
Total Cost
EXERCISE 13-9 (Continued)
Schedule
Total
Factory
Sales
Administrative
Wages
$188,000
$120,000
$32,000
$36,000
FICA
13,142
9,180
1,208
2,754
Federal U.T.
320
32
– 0 –
State U.T.
1,100
1,000
100
– 0 –
Total Cost
(b)
Factory Payroll:
Salaries and Wages Expense …………………………..
120,000
Withholding Taxes Payable ……………………..
16,000
FICA Taxes Payable ………………………………..
Cash ………………………………………………………
Payroll Tax Expense ……………………………………….
FICA Taxes Payable ………………………………..
FUTA Taxes Payable ……………………………….
SUTA Taxes Payable ……………………………….
EXERCISE 13-9 (Continued)
Sales Payroll:
Salaries and Wages Expense …………………………..
32,000
Withholding Taxes Payable ……………………..
7,000
FICA Taxes Payable ………………………………..
1,208
Cash ………………………………………………………
Payroll Tax Expense ……………………………………….
FICA Taxes Payable ………………………………..
1,208
FUTA Taxes Payable ……………………………….
SUTA Taxes Payable ……………………………….
Administrative Payroll:
Salaries and Wages Expense …………………………..
36,000
Withholding Taxes Payable ……………………..
6,000
FICA Taxes Payable ………………………………..
2,754
Cash ………………………………………………………
27,246
Payroll Tax Expense ……………………………………….
FICA Taxes Payable ………………………………..
2,754
EXERCISE 13-10 (10–15 minutes)
(a)
Cash (200 X $4,000) …………………………………………………
800,000
Sales Revenue ………………………………………………..
800,000
Warranty Expense …………………………..………………………
17,000
Cash ……………………………………………………….
17,000
Warranty Expense ($66,000* – $17,000) …………………….
49,000
Warranty Liability ……………………………………………
49,000
(b)
Cash ………………………………………………………………………
800,000
Sales Revenue ………………………………………………..
800,000
Warranty Expense …………………………..………………………
17,000
Cash ……………………………………………………….
17,000
EXERCISE 13-11 (15–20 minutes)
(a)
Cash …………………………..………………………………………….
3,000,000
Sales Revenue ………………………………………………..
3,000,000
(500 X $6,000)
Warranty Expense …………………………………………………..
Cash ……………………………………………………….
Warranty Expense …………………………………………………..
Warranty Liability ……………………………………………
($120,000 – $20,000)
(b)
Cash …………………………..………………………………………….
3,000,000
Sales Revenue ………………………………………………..
2,850,000
Unearned Warranty Revenue …………………………..
150,000
Warranty Expense …………………………………………………..
Cash ……………………………………………………….
Unearned Warranty Revenue …………………………..
Warranty Revenue ………………………………………….
[$150,000 X ($20,000/$120,000)]
EXERCISE 13-12 (15–20 minutes)
Inventory of Premiums (8,800 X $.80) ……………………….
7,040
Cash ………………………………………………………………
7,040
Cash (110,000 X $3.30) …………………………………………….
363,000
Sales Revenue ………………………………………………..
363,000
Premium Expense …………………………………………………..
3,520
Inventory of Premiums [(44,000 ÷ 10) X $.80] …….
3,520
Premium Expense …………………………………………………..
Premium Liability ……………………………………………
1,760
*[(110,000 X 60%) – 44,000] ÷ 10 X $.80 = 1,760
EXERCISE 13-13 (20–30 minutes)
1. The FASB requires that, when some amount within the range of
expected loss appears at the time to be a better estimate than any
2. The loss should be accrued for $5,000,000. The potential insurance
recovery is a gain contingency—it is not recorded until received.
3. This is a gain contingency because the amount to be received will be
EXERCISE 13-14 (25–30 minutes)
(a)
Plant Assets ……………………………………………………….
600,000
Cash ………………………………………………………………
600,000
Plant Assets ……………………………………………………….
41,879
Asset Retirement Obligation …………………………..
41,879
(b)
Depreciation Expense ……………………………………………..
60,000
Accumulated Depreciation – Plant Assets ………..
60,000
Depreciation Expense ……………………………………………..
Accumulated Depreciation – Plant Assets ………..
Interest Expense …………………………………………………….
EXERCISE 13-14 (Continued)
Loss on ARO Settlement …………………………………………
Cash ……………………………………………………….
EXERCISE 13-15 (25–35 minutes)
1.
Liability for stamp redemptions, 12/31/13
$13,000,000
Cost of redemptions redeemed in 2014
(6,000,000)
2.
Total coupons issued
$800,000
Redemption rate
60%
To be redeemed
480,000
Handling charges ($480,000 X 10%)
48,000
Total cost
$528,000
Total payments to retailers
3.
Boxes
700,000
Redemption rate
70%
Coupons to be redeemed (490,000 – 250,000)
240,000
Cost ($6.50 – $4.00)
$2.50
EXERCISE 13-16 (30–35 minutes)
#
Assets
Liabilities
Owners’ Equity
Net Income
1
I
I
NE
NE
2
NE
NE
NE
NE
3
NE
I
D
D
4
I
I
NE
NE
5
NE
I
D
D
6
I
I
7
I
D
D
8
NE
I
D
D
9
NE
I
D
D
10
I
I
NE
NE
11
NE
I
D
D
12
NE
I
D
D
13
NE
I
D
D
14
NE
NE
15
I
I
16
NE
D
D
17
NE
18
NE
I
D
D
EXERCISE 13-17 (15–20 minutes)
(a)
Current Ratio =
Current Assets
=
$210,000
= 2.63
Current Liabilities
$80,000
Current ratio measures the short-term ability of the company to meet
its currently maturing obligations.
(c)
Debt to assets =
Total Liabilities
=
$220,000
= 51.16%
Total Assets
$430,000
This ratio provides the creditors with some idea of the corporation’s
ability to withstand losses without impairing the interests of creditors.
(d)
EXERCISE 13-18 (20–25 minutes)
(a)
(1)
Current ratio =
$773,000
= 3.22 times
$240,000
(2)
Acid-test ratio =
= 1.38 times
EXERCISE 13-18 (Continued)
every 31 days)
(4) Inventory turnover =
$800,000 ÷
$360,000 + $440,000
= 2 times (or approximately
2
every 183 days)
(b) Financial ratios should be evaluated in terms of industry peculiarities
and prevailing business conditions. Although industry and general
business conditions are unknown in this case, the company appears
EXERCISE 13-19 (15–25 minutes)
(a)
(1)
$318,000 ÷ $87,000 = 3.66 times
(3)
$1,400,000 ÷ $95,000 = 14.74 times = 25 days
EXERCISE 13-19 (Continued)
(4) $410,000 ÷ 52,000 = $7.88
(b) (1) No effect on current ratio, if already included in the allowance
for doubtful accounts.
(2) Weaken current ratio by reducing current assets.
TIME AND PURPOSE OF PROBLEMS
Problem 13-1 (Time 25–30 minutes)
Purpose—to present the student with an opportunity to prepare journal entries for a variety of situations
Problem 13-2 (Time 25–35 minutes)
Problem 13-3 (Time 20–30 minutes)
Purpose—to present the student with an opportunity to prepare journal entries for four weekly payrolls.
The student must compute income tax to be withheld, FICA tax, and state and federal unemployment
compensation taxes. The student must realize the fact that in the fourth week only a portion of one
employee’s payroll is subject to unemployment tax.
Problem 13-4 (Time 20–25 minutes)
Purpose—to provide the student with the opportunity to prepare journal entries for a monthly payroll.
Problem 13-5 (Time 15–20 minutes)
Purpose—to provide the student with an opportunity to prepare journal entries and balance sheet
Problem 13-6 (Time 10–20 minutes)
Purpose—to provide the student with a basic problem covering the sales-warranty method. The student
is required to prepare journal entries in the year of sale and in subsequent years when warranty costs
Problem 13-7 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to prepare journal entries for warranty costs under
Problem 13-8 (Time 15–25 minutes)
Purpose—to provide the student with a basic problem in accounting for premium offers. The student is
Time and Purpose of Problems (Continued)
Problem 13-9 (Time 30–45 minutes)
Purpose—to present the student with a slightly complicated problem related to accounting for premium
offers. The problem is more complicated in that coupons redeemed are accompanied by cash payments,
Problem 13-10 (Time 25–30 minutes)
Purpose—to present the student with the problem of determining the proper amount of and disclosure
for a contingent loss due to lawsuits. The student is required to prepare a journal entry and a footnote.
The student is also required to discuss any liability incurred by a company due to the risk of loss from
lack of insurance coverage. A straightforward problem dealing with contingent losses.
Problem 13-11 (Time 35–45 minutes)
Purpose—to provide the student with a comprehensive problem dealing with contingent losses. The
Problem 13-12 (Time 20–30 minutes)
Purpose—to provide the student with a problem to calculate warranty expense, estimated warranty
liability, premium expense, inventory of premiums, and premium liability.
Problem 13-13 (Time 25–35 minutes)
Problem 13-14 (Time 20–25 minutes)
Purpose—to present the student with a comprehensive problem in determining the amounts of various
SOLUTIONS TO PROBLEMS
PROBLEM 13-1
(a) February 2
Purchases ($70,000 X 98%) ……………………………..
68,600
Accounts Payable …………………………………..
68,600
February 26
Accounts Payable …………………………………………..
68,600
Purchase Discounts Lost ………………………………..
1,400
Cash ……………………………………………………..
70,000
April 1
Trucks ……………………………………………………………
50,000
Cash ……………………………………………………..
Notes Payable ………………………………………..
46,000
May 1
Cash ………………………………………………………………
83,000
Discount on Notes Payable ……………………………..
9,000
Notes Payable ………………………………………..
92,000
August 1
Retained Earnings (Dividends) …………………………
Dividends Payable ………………………………….
Dividends Payable …………………………………………..
Cash ……………………………………………………..
(b) December 31
1. No adjustment necessary
2. Interest Expense ($46,000 X 12% X 9/12) ………
4,140
Interest Payable ……………………………………..
4,140
3. Interest Expense ($9,000 X 8/12) ………………….
6,000
Discount on Notes Payable …………………….
6,000
PROBLEM 13-2
1.
Dec. 5
Cash ……………………………………………………….
500
Due to Customer …………………………..
500
2.
Dec. 1-31
Cash ……………………………………………………….
798,000
Sales Taxes Payable
($760,000 X .05) …………………………..
3.
Dec. 10
Trucks ($120,000 X 1.05) …………………………..
126,000
Cash ……………………………………………………….
4.
Dec. 31
Land Improvements …………………………..
Asset Retirement Obligation …………………………..
Sales Revenue
PROBLEM 13-3
Entries for Payroll 1
Salaries and Wages Expense …………………………………..
1,040.00*
Withholding Taxes Payable (10% X $1,040)* ……..
104.00
FICA Taxes Payable (7.65% X $1,040) ……………….
Union Dues Payable (2% X $1,040) …………………..
20.80
Cash ………………………………………………………………
835.64
*$200 + $150 + $110 + $250 + $330 = $1,040
Payroll Tax Expense ………………………………………………..
94.74
FICA Taxes Payable (7.65% X $1,040) ……………….
79.56
FUTA Taxes Payable
[0.8% X ($200 + $150 + $110)] ………………………..
3.68
SUTA Taxes Payable (2.5% X $460) ………………….
11.50
Entries for Payroll 2 and 3
Salaries and Wages Payable (Vacation) ……………………
590.00*
Salaries and Wages Expense …………………………………..
Withholding Taxes Payable (10% X $1,040) ……….
FICA Taxes Payable (7.65% X $1,040) ……………….
79.56
Union Dues Payable (2% X $1,040) …………………..
20.80
Cash ………………………………………………………………
*($300 + $220 + $660) ÷ 2
Payroll Tax Expense ………………………………………………..
94.74
FICA Taxes Payable (7.65% X $1,040) ……………….
79.56
FUTA Taxes Payable (0.8% X $460)…………………..
3.68
SUTA Taxes Payable (2.5% X $460) ………………….
11.50
Entries for Payroll 4
Salaries and Wages Expense …………………………………..
1,040.00
Withholding Taxes Payable (10% X $1,040) ……….
FICA Taxes Payable (7.65% X $1,040) ……………….
Union Dues Payable (2% X $1,040) …………………..
PROBLEM 13-3 (Continued)
Payroll Tax Expense ……………………………………………….
94.74
FICA Taxes Payable (7.65% X $1,040) ……………….
79.56
SUTA Taxes Payable (2.5% X $460) ………………….
11.50
Union Dues Payable ($20.80 X 4) ……………………………..
FUTA Taxes Payable ($3.68 X 4) ……………………………….
Cash ………………………………………………………………
PROBLEM 13-4
(a)
Name
Earnings
to Aug. 31
September
Earnings
Income Tax
Withholding
FICA
SUTA
FUTA
B. D. Williams
$ 6,800
$ 800
$ 80
$ 61.20
$2.00*
$1.60**
D. Raye
6,500
700
70
53.55
5.00***
4.00****
K. Baker
7,600
1,100
110
84.15
F. Lopez
13,600
1,900
190
A. Daniels
B. Kingston
–
–
*($7,000 – $6,800) X 1% = $2.00 a($6,700 X 6.2%) + ($6,300 X 1.45%) = $506.75
**($7,000 – $6,800) X .8% = $1.60 b($1,700 X 6.2%) + ($14,300 X 1.45%) = $312.75
Salaries and Wages Expense …………………………..
33,500.00
Withholding Taxes Payable …………………………..
3,350.00
FICA Taxes Payable ………………………………………..
1,163.75
Cash ……………………………………………………….
28,986.25
(b)
Payroll Tax Expense ……………………………………………….
1,176.35
FICA Taxes Payable ………………………………………..
1,163.75
FUTA Taxes Payable ……………………………………….
SUTA Taxes Payable ……………………………………….
(c)
Withholding Taxes Payable ……………………………………..
3,350.00
FICA Taxes Payable ………………………………………………..
2,327.50
FUTA Taxes Payable ……………………………………………….
SUTA Taxes Payable ……………………………………………….
Cash ……………………………………………………….
5,690.10
PROBLEM 13-5
(a)
Cash (400 X $2,500) ………………………………………………..
1,000,000
Sales Revenue ……………………………………………….
1,000,000
(b)
Cash (400 X $2,500) ………………………………………………..
1,000,000
Sales Revenue ……………………………………………….
1,000,000
Warranty Expense (400 X [$155 + $185]) …………………..
Warranty Liability …………………………..……………….
136,000
(d)
Current Liabilities:
Warranty Liability ……………………………………………
$68,000
Long-term Liabilities:
Warranty Liability ……………………………………………
$68,000
(e)
Warranty Expense …………………………………………………..
Salaries and Wages Payable …………………………..
Warranty Liability ……………………………………………………
Inventory ……………………………………………………….
Salaries and Wages Payable …………………………..
PROBLEM 13-6
(a)
Cash ………………………………………………………………………
294,300
Sales Revenue (300 X $900) …………………………..
270,000
Unearned Warranty Revenue (270 X $90) …………….
24,300
(b)
Current Liabilities:
Unearned Warranty Revenue ($24,300/3) ………….
$ 8,100
(Note: Warranty costs assumed to be
Long-term Liabilities:
(c)
Unearned Warranty Revenue …………………………..
8,100
Warranty Revenue …………………………………………..
8,100
Warranty Expense …………………………..………………………
6,000
Inventory ……………………………………………………….
2,000
(d)
Current Liabilities:
Unearned Warranty Revenue …………………………..
$ 8,100
Long-term Liabilities:
Unearned Warranty Revenue …………………………..
$ 8,100