1.
| Listed below are a few transactions and events of Piper Company. |
| 1. |
Piper Company records a year-end entry for $10,000 of previously unrecorded cash sales (costing $5,000) and its sales taxes at a rate of 4%.
|
| 2. | The company earned $50,000 of $125,000 previously received in advance for services. |
Prepare any necessary adjusting entries at December 31, 2015, for Piper Company's year-end financial statements for each of the above separate transactions and events. (Piper has the policy of recording cash received in advance in balance sheet accounts.)
|
| Transaction | General Journal | Debit | Credit |
| 01(a) | Cash | 10,400 | |
| Sales | | 10,000 |
| Sales taxes payable | | 400 |
| | | |
| 01(b) | Cost of goods sold | 5,000 | |
| Merchandise inventory | | 5,000 |
| | | |
| 02 | Unearned services revenue | 50,000 | |
| Earned services revenue | | 50,000 |
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2.
Keesha Co. borrows $200,000 cash on November 1, 2015, by signing a 90-day, 9% note with a face value of $200,000.
|
| 1. | On what date does this note mature? Assume a 365 day year. |
January 30, 2016.  |
| 2. & 3. |
What is the amount of interest expense in 2015 and 2016 from this note? (Use 360 days a year. Do not round intermediate calculations.)
|
|
|
| Total through maturity | Interest Expense 2015 | Interest Expense 2016 |
| Principal | $200,000 | $200,000 | $200,000 |
| Rate (%) | 9% | 9% | 9% |
| Time | 90/360 | 60/360 | 30/360 |
| Total interest | $4,500 | $3,000 | $1,500 |
|
| 4. |
Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2015, and (c) payment of the note at maturity. (Use 360 days a year. Do not round intermediate calculations.)
|
| Transaction | General Journal | Debit | Credit |
| (a) | Cash | 200,000 | |
| Notes payable | | 200,000 |
| | | |
| (b) | Interest expense | 3,000 | |
| Interest payable | | 3,000 |
| | | |
| (c) | Interest expense | 1,500 | |
| Interest payable | 3,000 | |
| Notes payable | 200,000 | |
| Cash | | 204,500 |
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3.
Hitzu Co. sold a copier costing $4,800 with a two-year parts warranty to a customer on August 16, 2015, for $6,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, the copier requires on-site repairs that are completed the same day. The repairs cost $209 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.
| 1. |
How much warranty expense does the company report in 2015 for this copier?
|
| 2. |
How much is the estimated warranty liability for this copier as of December 31, 2015?
|
|
|
| Estimated warranty liability | $240 |
|
| 3. |
How much warranty expense does the company report in 2016 for this copier?
|
| 4. |
How much is the estimated warranty liability for this copier as of December 31, 2016?
|
|
|
| Estimated warranty liability | $31 |
|
| 5. |
Prepare journal entries to record (a) the copier’s sale; (b) the adjustment on December 31, 2015, to recognize the warranty expense; and (c) the repairs that occur in November 2016.
|
| Date | General Journal | Debit | Credit |
| Aug. 16, 2015 | Cash | 6,000 | |
| Sales | | 6,000 |
| | | |
| Aug. 16, 2015 | Cost of goods sold | 4,800 | |
| Merchandise inventory | | 4,800 |
| | | |
| Dec 31, 2015 | Warranty expense | 240 | |
| Estimated warranty liability | | 240 |
| | | |
| Nov. 22, 2016 | Estimated warranty liability | 209 | |
| Repair parts inventory | | 209 |
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4.
| Use the following information from separate companies a through f : |
| Net Income (Loss) | Interest Expense | Income Taxes |
| a. | $ | 115,000 | | $ | 44,000 | | $ | 35,000 | |
| b. | | 110,000 | | | 16,000 | | | 50,000 | |
| c. | | 100,000 | | | 12,000 | | | 70,000 | |
| d. | | 235,000 | | | 14,000 | | | 130,000 | |
| e. | | 59,000 | | | 14,000 | | | 30,000 | |
| f. | | (5,000) | | | 10,000 | | | 0 | |
|
| Compute times interest earned. |
|
|
| Times Interest Earned Ratio | |
| Company | Choose Numerator: | / | Choose Denominator: | = | Ratio |
| Income before interest & taxes | / | Interest expense | = | | |
| a | $194,000 | / | $44,000 | = | 4.41 | times |
| b | $176,000 | / | $16,000 | = | 11.00 | times |
| c | $182,000 | / | $12,000 | = | 15.17 | times |
| d | $379,000 | / | $14,000 | = | 27.07 | times |
| e | $103,000 | / | $14,000 | = | 7.36 | times |
| f | $5,000 | / | $10,000 | = | 0.50 | times |
|
Which company indicates the strongest ability to pay interest expense as it comes due?
Company d
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5.
Paloma Co. Stars has four employees. FICA Social Security taxes are 6.2% of the first $117,000 paid to each employee, and FICA Medicare taxes are 1.45% of gross pay. Also, for the first $7,000 paid to each employee, the company’s FUTA taxes are 0.6% and SUTA taxes are 2.15%. The company is preparing its payroll calculations for the week ended August 25. Payroll records show the following information for the company’s four employees.
|
| | Current Week |
| |
|
| Name | Gross Pay
through Aug. 18 | Gross Pay | Income Tax Withholding |
| Dahlia | | $ | 115,900 | | | $ | 2,000 | | | $ | 284 | |
| Trey | | | 116,100 | | | | 900 | | | | 145 | |
| Kiesha | | | 7,100 | | | | 450 | | | | 39 | |
| Chee | | | 1,050 | | | | 400 | | | | 30 | |
|
In addition to gross pay, the company must pay one-half of the $60 per employee weekly health insurance; each employee pays the remaining one-half. The company also contributes an extra 8% of each employee’s gross pay (at no cost to employees) to a pension fund.
|
| Required: |
Compute the following for the week ended August 25. (Round your intermediate calculations and final answers to 2 decimal places.):
|
|
|
| 1) Employees' FICA Withholdings for Social Security | |
| Employee | Earnings Subject to Tax | Tax Rate | Tax Amount | | |
| Dahlia | $1,100.00 | 6.20% | 68.20 | | |
| Trey | 900.00 | 6.20% | 55.80 | | |
| Kiesha | 450.00 | 6.20% | 27.90 | | |
| Chee | 400.00 | 6.20% | 24.80 | | |
| | Total | $176.70 | | |
| | | | | |
| 2) Employees' FICA Withholdings for Medicare | |
| Employee | Earnings Subject to Tax | Tax Rate | Tax Amount | | |
| Dahlia | $2,000.00 | 1.45% | $29.00 | | |
| Trey | 900.00 | 1.45% | 13.05 | | |
| Kiesha | 450.00 | 1.45% | 6.53 | | |
| Chee | 400.00 | 1.45% | 5.80 | | |
| | Total | $54.38 | | |
| | | | | |
| 3) Employer's FICA Taxes for Social Security | |
| Employee | Earnings Subject to Tax | Tax Rate | Tax Amount | | |
| Dahlia | $1,100.00 | 6.20% | $68.20 | | |
| Trey | 900.00 | 6.20% | 55.80 | | |
| Kiesha | 450.00 | 6.20% | 27.90 | | |
| Chee | 400.00 | 6.20% | 24.80 | | |
| | Total | $176.70 | | |
| | | | | |
| 4) Employer's FICA Taxes for Medicare | |
| Employee | Earnings Subject to Tax | Tax Rate | Tax Amount | | |
| Dahlia | $2,000.00 | 1.45% | $29.00 | | |
| Trey | 900.00 | 1.45% | 13.05 | | |
| Kiesha | 450.00 | 1.45% | 6.53 | | |
| Chee | 400.00 | 1.45% | 5.80 | | |
| | Total | $54.38 | | |
| | | | | |
| 5) Employer's FUTA Taxes | |
| Employee | Earnings Subject to Tax | Tax Rate | Tax Amount | | |
| Dahlia | | 0.60% | | | |
| Trey | | 0.60% | | | |
| Kiesha | | 0.60% | | | |
| Chee | 400.00 | 0.60% | $2.40 | | |
| | Total | $2.40 | | |
| | | | | |
| 6) Employer's SUTA Taxes | |
| Employee | Earnings Subject to Tax | Tax Rate | Tax Amount | | |
| Dahlia | | 2.15% | | | |
| Trey | | 2.15% | | | |
| Kiesha | | 2.15% | | | |
| Chee | 400.00 | 2.15% | $8.60 | | |
| | Total | $8.60 | | |
| | | | | |
| 7) Each Employee's Net (take-home) Pay | |
| Employee | Dahlia | Trey | Kiesha | Chee | Total |
| Gross Pay | $2,000.00 | $900.00 | $450.00 | $400.00 | $3,750.00 |
| Income tax withholding | 284.00 | 145.00 | 39.00 | 30.00 | 498.00 |
| FICA - Social Security | 68.20 | 55.80 | 27.90 | 24.80 | 176.70 |
| FICA - Medicare | 29.00 | 13.05 | 6.53 | 5.80 | 54.38 |
| Health Insurance | 30.00 | 30.00 | 30.00 | 30.00 | 120.00 |
| Net Pay | $1,588.80 | $656.15 | $346.57 | $309.40 | $2,900.92 |
| | | | | |
| 8) Total Payroll Related Expense for Each Employee |
| Employee | Dahlia | Trey | Kiesha | Chee | Total |
| Gross Pay | $2,000.00 | $900.00 | $450.00 | $400.00 | $3,750.00 |
| FICA - Social Security | 68.20 | 55.80 | 27.90 | 24.80 | 176.70 |
| FICA - Medicare | 29.00 | 13.05 | 6.53 | 5.80 | 54.38 |
| FUTA | 0.00 | 0.00 | 0.00 | 2.40 | 2.40 |
| SUTA | 0.00 | 0.00 | 0.00 | 8.60 | 8.60 |
| Health Insurance | 30.00 | 30.00 | 30.00 | 30.00 | 120.00 |
| Pension | 160.00 | 72.00 | 36.00 | 32.00 | 300.00 |
| Total Payroll Expense | $2,287.20 | $1,070.85 | $550.43 | $503.60 | $4,412.08 |
|
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Question 6-10
[The following information applies to the questions displayed below.]
On October 29, 2014, Lobo Co. began operations by purchasing razors for resale. Lobo uses the perpetual inventory method. The razors have a 90-day warranty that requires the company to replace any nonworking razor. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company’s cost per new razor is $20 and its retail selling price is $75 in both 2014 and 2015. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred.
|
| Nov. | 11 | Sold 105 razors for $7,875 cash. |
| 30 | Recognized warranty expense related to November sales with an adjusting entry. |
| Dec. | 9 | Replaced 15 razors that were returned under the warranty. |
| 16 | Sold 220 razors for $16,500 cash. |
| 29 | Replaced 30 razors that were returned under the warranty. |
| 31 | Recognized warranty expense related to December sales with an adjusting entry. |
| Jan. | 5 | Sold 150 razors for $11,250 cash. |
| 17 | Replaced 50 razors that were returned under the warranty. |
| 31 | Recognized warranty expense related to January sales with an adjusting entry. |
6.
| 1.1 |
Prepare journal entries to record above transactions and adjustments for 2014.
|
| Date | General Journal | Debit | Credit |
| Nov 11 | Cash | 7,875 | |
| Sales | | 7,875 |
| | | |
| Nov 11 | Cost of goods sold | 2,100 | |
| Merchandise inventory | | 2,100 |
| | | |
| Nov 30 | Warranty expense | 630 | |
| Estimated warranty liability | | 630 |
| | | |
| Dec 09 | Estimated warranty liability | 300 | |
| Merchandise inventory | | 300 |
| | | |
| Dec 16 | Cash | 16,500 | |
| Sales | | 16,500 |
| | | |
| Dec 16 | Cost of goods sold | 4,400 | |
| Merchandise inventory | | 4,400 |
| | | |
| Dec 29 | Estimated warranty liability | 600 | |
| Merchandise inventory | | 600 |
| | | |
| Dec 31 | Warranty expense | 1,320 | |
| Estimated warranty liability | | 1,320 |
| 1.2 |
Prepare journal entries to record above transactions and adjustments for 2015.
|
| Date | General Journal | Debit | Credit |
| Jan 05 | Cash | 11,250 | |
| Sales | | 11,250 |
| | | |
| Jan 05 | Cost of goods sold | 3,000 | |
| Merchandise inventory | | 3,000 |
| | | |
| Jan 17 | Estimated warranty liability | 1,000 | |
| Merchandise inventory | | 1,000 |
| | | |
| Jan 31 | Warranty expense | 900 | |
| Estimated warranty liability | | 900 |
7.
| 2. |
How much warranty expense is reported for November 2014 and for December 2014?
|
|
|
| |
| Warranty expense for November 2014 | $630 |
| Warranty expense for December 2014 | $1,320 |
|
8.
| 3. |
How much warranty expense is reported for January 2015?
|
9.
| 4. |
What is the balance of the Estimated Warranty Liability account as of December 31, 2014?
|
|
|
| Estimated warranty liability balance | $1,050 |
|
10.
| 5. | What is the balance of the Estimated Warranty Liability account as of January 31, 2015? |
|
|
| Estimated warranty liability balance | $950 |
|
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11.
Francisco Company has 10 employees, each of whom earns $2,800 per month and is paid on the last day of each month. All 10 have been employed continuously at this amount since January 1. On March 1, the following accounts and balances exist in its general ledger:
|
| a. |
FICA—Social Security Taxes Payable, $3,472; FICA—Medicare Taxes Payable, $812. (The balances of these accounts represent total liabilities for both the employer’s and employees’ FICA taxes for the February payroll only.)
|
| b. | Employees’ Federal Income Taxes Payable, $4,000 (liability for February only). |
| c. | Federal Unemployment Taxes Payable, $336 (liability for January and February together). |
| d. | State Unemployment Taxes Payable, $2,240 (liability for January and February together). |
| During March and April, the company had the following payroll transactions. |
| Mar. 15 |
Issued check payable to Swift Bank, a federal depository bank authorized to accept employers’ payments of FICA taxes and employee income tax withholdings. The $8,284 check is in payment of the February FICA and employee income taxes.
|
| 31 |
Recorded the journal entry for the March salaries payable. Then recorded the cash payment of the March payroll (the company issued checks payable to each employee in payment of the March payroll). The payroll register shows the following summary totals for the March pay period.
|
| Salaries | | | |
| | | |
Office
Salaries | Shop
Salaries | Gross
Pay | FICA
Taxes* | Federal
Income
Taxes | Net
Pay |
| $ | 11,200 | $ | 16,800 | $ | 28,000 | $ | 1,736 | $ | 4,000 | $ | 21,858 |
| | | | | | | $ | 406 | | | | |
|
|
* FICA taxes are Social Security and Medicare, respectively.
|
| 31 |
Recorded the employer’s payroll taxes resulting from the March payroll. The company has a merit rating that reduces its state unemployment tax rate to 4.0% of the first $7,000 paid each employee. The federal rate is 0.6%.
|
| Apr. 15 |
Issued check to Swift Bank in payment of the March FICA and employee income taxes.
|
| 15 |
Issued check to the State Tax Commission for the January, February, and March state unemployment taxes. Mailed the check and the first-quarter tax return to the Commission.
|
| 30 |
Issued check payable to Swift Bank in payment of the employer’s FUTA taxes for the first quarter of the year.
|
| 30 |
Mailed Form 941 to the IRS, reporting the FICA taxes and the employees’ federal income tax withholdings for the first quarter.
|
| Required: |
Prepare journal entries to record the transactions and events for both March and April. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
|
| Date | General Journal | Debit | Credit |
| Mar 15 | FICA—Social sec. taxes payable | 3,472 | |
| FICA—Medicare taxes payable | 812 | |
| Employee fed. inc. taxes payable | 4,000 | |
| Cash | | 8,284 |
| | | |
| Mar 31 | Office salaries expense | 11,200 | |
| Shop salaries expense | 16,800 | |
| FICA—Social sec. taxes payable | | 1,736 |
| FICA—Medicare taxes payable | | 406 |
| Employee fed. inc. taxes payable | | 4,000 |
| Salaries payable | | 21,858 |
| | | |
| Mar 31 | Salaries payable | 21,858 | |
| Cash | | 21,858 |
| | | |
| Mar 31 | Payroll taxes expense | 2,786 | |
| FICA—Social sec. taxes payable | | 1,736 |
| FICA—Medicare taxes payable | | 406 |
| State unemployment taxes payable | | 560 |
| Federal unemployment taxes payable | | 84 |
| | | |
| Apr 15 | FICA—Social sec. taxes payable | 3,472 | |
| FICA—Medicare taxes payable | 812 | |
| Employee fed. inc. taxes payable | 4,000 | |
| Cash | | 8,284 |
| | | |
| Apr 15 | State unemployment taxes payable | 2,800 | |
| Cash | | 2,800 |
| | | |
| Apr 30 | Federal unemployment taxes payable | 420 | |
| Cash | | 420 |
| | | |
| Apr 30 | No journal entry required | |
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12.
Sylvestor Systems borrows $110,000 cash on May 15, 2015, by signing a 60-day, 12% note
| 1. | On what date does this note mature? |
| July 14, 2015 |
| 2. | Assume the face value of the note equals $110,000, the principal of the loan. |
| (a) | Prepare the journal entry to record issuance of the note. |
| Date | General Journal | Debit | Credit |
| May 15 | Cash | 110,000 | |
| Notes payable | | 110,000 |
| (b) |
First, complete the table below to calculate the interest expense at maturity. Use those calculated values to prepare your journal entry to record payment of the note at maturity. (Use 360 days a year. Do not round intermediate calculations.)
|
|
|
| Interest at Maturity |
| Principal | $110,000 |
| Rate (%) | 12% |
| Time | 60/360 |
| Total interest | $2,200 |
|
| Event | General Journal | Debit | Credit |
| 1 | Interest expense | 2,200 | |
| Notes payable | 110,000 | |
| Cash | | 112,200 |
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13.
BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $117,000 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 2.9% of the first $7,000 paid to its employee.
|
| Gross Pay through August | | Gross Pay for September | |
| a. | | $ | 6,400 | | | | $ | 800 | | |
| b. | | | 18,200 | | | | | 2,100 | | |
| c. | | | 110,700 | | | | | 8,000 | | |
|
Compute BMX’s amounts for each of these four taxes as applied to the employee’s gross earnings for September under each of three separate situations (a), (b), and (c). (Round your answers to 2 decimal places.)
|
|
| a) |
| Tax | September Earnings Subject to Tax | Tax Rate | Tax Amount |
| FICA-Social Security | $800.00 | 6.20% | $49.60 |
| FICA-Medicare | 800.00 | 1.45% | 11.60 |
| FUTA | 600.00 | 0.60% | 3.60 |
| SUTA | 600.00 | 2.90% | 17.40 |
| b) |
| Tax | September Earnings Subject to Tax | Tax Rate | Tax Amount |
| FICA-Social Security | 2,100.00 | 6.20% | $130.20 |
| FICA-Medicare | 2,100.00 | 1.45% | 30.45 |
| FUTA | 0 | | |
| SUTA | 0 | | |
| c) |
| Tax | September Earnings Subject to Tax | Tax Rate | Tax Amount |
| FICA-Social Security | 6,300.00 | 6.20% | $390.60 |
| FICA-Medicare | 8,000.00 | 1.45% | 116.00 |
| FUTA | 0 | | |
| SUTA | 0 | |
|
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14.
BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $117,000 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 2.9% of the first $7,000 paid to its employee.
|
| Gross Pay through August | Gross Pay for September |
| a. | $ | 6,400 | $ | 800 |
|
Prepare the employer’s September 30 journal entries to record salary expense and its related payroll liabilities for this employee. The employee’s federal income taxes withheld by the employer are $80 for this pay period. (Round your answers to 2 decimal places.)
|
|
|
| Taxes to be Withheld From Gross Pay (Employee-Paid Taxes) |
| September Earnings Subject to Tax | Tax Rate | Tax Amount |
| Federal income tax | | | $80.00 |
| FICA—Social Security | $800.00 | 6.20% | 49.60 |
| FICA—Medicare | 800.00 | 1.45% | 11.60 |
| Total taxes withheld | $141.20 |
|
| Date | General Journal | Debit | Credit |
| Sep 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 | | 658.80 |
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15.
BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $117,000 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 2.9% of the first $7,000 paid to its employee.
|
| Gross Pay through August | Gross Pay for September |
| a. | $ | 6,400 | $ | 800 |
|
Prepare the employer’s September 30 journal entries to record the employer’s payroll taxes expense and its related liabilities. (Round your answers to 2 decimal places.)
|
|
| Employer Payroll taxes | September earnings subject to tax | Tax Rate | Tax Amount |
| FICA-Social Security | $800.00 | 6.20% | $49.60 |
| FICA-Medicare | 800.00 | 1.45% | 11.60 |
| FUTA | 600.00 | 0.60% | 3.60 |
| SUTA | 600.00 | 2.90% | 17.40 |
| Total Payroll Taxes Expense | $82.20 |
|
| Date | General Journal | Debit | Credit |
| Sep. 30 | Payroll taxes expense | 82.20 | |
| FICA—Social security taxes payable | | 49.60 |
| FICA—Medicare taxes payable | | 11.60 |
| Federal unemployment taxes payable | | 3.60 |
| State unemployment taxes payable | | 17.40
|
