Question 1 - Identify the three types of employer payroll taxes.
How are tax liability accounts and payroll tax expense accounts classified in the financial statements?
Question 2 - Peralta Company borrows $45,600 on July 1 from the bank by signing a $45,600, 10%, one-year note payable.
(a) Prepare the journal entry to record the proceeds of the note.
(b) Prepare the journal entry to record accrued interest at December 31, assuming adjusting entries are made only at the end of the year.
Question 3 - Coghlan Auto Supply does not segregate sales and sales taxes at the time of sale. The register total for March 16 is $34,100. All sales are subject to a 10% sales tax.
Compute sales taxes payable.
Make the entry to record sales taxes payable and sales revenue.
Question 4 - Beth Corbin's regular hourly wage rate is $18, and she receives an hourly rate of $27 for work in excess of 40 hours. During a January pay period, Beth works 50 hours. Beth's federal income tax withholding is $94, she has no voluntary deductions, and the FICA tax rate is 7.65%. Use January 15 for the end of the pay period and the payment date.
Prepare the journal entries to record (a) Beth's pay for the period and (b) the payment of Beth's wages.
Question 5 - On June 1, Merando Company borrows $90,000 from First Bank on a 6-month, $90,000, 8% note.
Prepare the entry on June 1.
Prepare the adjusting entry on June 30.
Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30.
What was the total financing cost (interest expense)?
Question 6 - Betancourt Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experience, Betancourt estimates that 4% of the units sold will become defective during the warranty period. Management estimates that the average cost of replacing or repairing a defective unit is $15. The units sold and units defective that occurred during the last 2 months of 2017 are as follows.
|
Month
|
Units Sold
|
Units Defective Prior to December 31
|
|
November
|
30,900
|
618
|
|
December
|
32,900
|
411
|
Prepare the journal entries to record the estimated liability for warranties and the costs incurred in honoring 1,029 warranty claims. (Assume actual costs of $15,435.)
Determine the estimated warranty liability at December 31 for the units sold in November and December.
Give the entry to record the honoring of 500 warranty contracts in January at an average cost of $15.
Question 7 - Suppose the following financial data were reported by 3M Company for 2016 and 2017 (dollars in millions).
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3M Company Balance Sheets (partial)
|
|
2017
|
2016
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$3,000
|
$1,917
|
|
Accounts receivable, net
|
3,590
|
3,140
|
|
Inventories
|
2,756
|
3,013
|
|
Other current assets
|
1,878
|
1,556
|
|
Total current assets
|
$11,224
|
$9,626
|
|
Current liabilities
|
$4,775
|
$5,866
|
Calculate the current ratio and working capital for 3M for 2016 and 2017.
Suppose that at the end of 2017, 3M management used $191 million cash to pay off $191 million of accounts payable. How would its current ratio and working capital have changed?
Question 8 - On January 1, 2017, the ledger of Accardo Company contains the following liability accounts.
Accounts Payable - $57,000
Sales Taxes Payable - 7,200
Unearned Service Revenue - 16,000
During January, the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $21,504, which includes 12% sales taxes.
Jan. 12 Performed services for customers who had made advance payments of $11,500. (Credit ervice Revenue.)
Jan. 14 Paid state revenue department for sales taxes collected in December 2016 ($7,200).
Jan. 20 Sold 900 units of a new product on credit at $50 per unit, plus 12% sales tax. This new product is subject to a 1-year warranty.
Jan. 21 Borrowed $22,500 from Girard Bank on a 3-month, 12%, $22,500 note.
Jan. 25 Sold merchandise for cash totaling $12,544, which includes 12% sales taxes.
Journalize the January transactions.
Journalize the adjusting entries at January 31 for (1) the outstanding notes payable, and (2) estimated warranty liability, assuming warranty costs are expected to equal 7% of sales of the new product. (Hint: Use one-third of a month for the Girard Bank note.)
Prepare the current liabilities section of the balance sheet at January 31, 2017. Assume no change in accounts payable.
Question 9 - The following are selected transactions of Blanco Company. Blanco prepares financial statements quarterly.
Jan. 2 Purchased merchandise on account from Nunez Company, $23,000, terms 2/10, n/30. (Blanco uses the perpetual inventory system.)
Feb. 1 Issued a 9%, 2-month, $23,000 note to Nunez in payment of account.
Mar. 31 Accrued interest for 2 months on Nunez note.
Apr. 1 Paid face value and interest on Nunez note.
July 1 Purchased equipment from Marson Equipment paying $11,000 in cash and signing a 10%, 3-month, $70,800 note.
Sept. 30 Accrued interest for 3 months on Marson note.
Oct. 1 Paid face value and interest on Marson note.
Dec. 1 Borrowed $28,800 from the Paola Bank by issuing a 3-month, 8% note with a face value of $28,800.
Dec. 31 Recognized interest expense for 1 month on Paola Bank note.
Prepare journal entries for the listed transactions and events.
Post to the accounts Notes Payable, Interest Payable, and Interest Expense.
Show the balance sheet presentation of notes and interest payable at December 31.
What is total interest expense for the year?
Question 10 - Mann Hardware has four employees who are paid on an hourly basis plus time-and-a-half for all hours worked in excess of 40 a week. Payroll data for the week ended March 15, 2017, are presented below.
|
Employee
|
Hours Worked
|
Hourly Rate
|
Federal Income Tax Withholdings
|
United Fund
|
|
Ben Abel
|
40
|
$15.00
|
$?
|
$5.00
|
|
Rita Hager
|
41
|
14.00
|
?
|
5.00
|
|
Jack Never
|
44
|
13.00
|
60.00
|
8.00
|
|
Sue Perez
|
46
|
13.00
|
61.00
|
5.00
|
Abel and Hager are married. They claim 0 and 4 withholding allowances, respectively. The following tax rates are applicable: FICA 7.65%, state income taxes 3%, state unemployment taxes 5.4%, and federal unemployment 0.8%.
Prepare a payroll register for the weekly payroll.
Journalize the payroll on March 15, 2017, and the accrual of employer payroll taxes.
Journalize the payment of the payroll on March 16, 2017.
Journalize the deposit in a Federal Reserve bank on March 31, 2017, of the FICA and federal income taxes payable to the government.
Question 11 - For the year ended December 31, 2017, Denkinger Electrical Repair Company reports the following summary payroll data.
|
Gross earnings:
|
|
|
Administrative salaries
|
$214,000
|
|
Electricians' wages
|
362,000
|
|
Total
|
$576,000
|
|
Deductions:
|
|
|
FICA taxes
|
$38,639
|
|
Federal income taxes withheld
|
187,500
|
|
State income taxes withheld (3%)
|
17,280
|
|
United Fund contributions payable
|
27,789
|
|
Health insurance premiums
|
19,500
|
|
Total
|
$290,708
|
Denkinger Company's payroll taxes are Social Security tax 6.2%, Medicare tax 1.45%, state unemployment 2.5% (due to a stable employment record), and 0.8% federal unemployment. Gross earnings subject to Social Security taxes of 6.2% total $488,500, and gross earnings subject to unemployment taxes total $149,500.
(a) Prepare a summary journal entry at December 31 for the full year's payroll.
(b) Journalize the adjusting entry at December 31 to record the employer's payroll taxes.
(c) The W-2 Wage and Tax Statement requires the following dollar data.
Complete the required data for the following employees.
|
Employee
|
Wages, Tips, Other Compensation
|
Federal Income Tax Withheld
|
State Income Tax Withheld
|
FICA Wages
|
FICA Tax Withheld
|
|
Maria Sandoval
|
$59,000
|
$28,910
|
$
|
$
|
$
|
|
Jennifer Mingenback
|
29,000
|
11,310
|
|
|
|