Transcript No Slide Title

E 13-1 How would each of the following items be reported on
the balance sheet?
(a) Accrued vacation pay
CURRENT LIABILITY
(b) Estimated taxes payable
CURRENT LIABILITY
© Service warranties on appliance sales
CURRENT or LONGTERM LIABILITY depending
upon terms of lease
(d) Bank overdraft
CURRENT LIABILITY
(e) Employee payroll deductions unremitted.
CURRENT LIABILITY
(f) Unpaid bonus to officers
CURRENT LIABILITY
(g) Deposit received from customer to guarantee performance of
a contract.
CURRENT LIABILITY or LONGTERM
(h) Sales taxes payable
CURRENT LIABILITY
(I) Gift certificates sold to customers but not yet redeemed.
CURRENT LIABILITY
(j) Premium offers outstanding.
CURRENT LIABILITY
(k) Discount on notes payable.
CONTRA TO NOTE PAYABLE
(l) Personal injury claim pending.
FOOTNOTE unless FAS 5 contingency
(M) Current maturities of long-term debt to be paid from
current assets.
CURRENT LIABILITY
(N) Cash dividends declared but not yet paid
CURRENT LIABILITY
(O) Dividends in arrears on preferred stock.
FOOTNOTE
(p) Loans from officers
as either LONGTERM or CURRENT LIABILITY
The following are selected 2007 transactions of Sean Astin Corporation.
a.
PREPARE JOURNAL ENTRIES for the selected transactions above.
Sept 1.
Purchased inventory from Encino Company on account for $50,0000.
Astin records purchases GROSS and uses a PERIODIC INVENTORY
SYSTEM.
Purchases................. $50,000
A/P........................... $50,000
The following are selected 2007 transactions of Sean Astin Corporation.
a.
PREPARE JOURNAL ENTRIES for the selected transactions above.
Oct 1.
Issued a $50,000, 12-month, 8% note to Encino in payment of
account.
A/P................. $50,000
N/P..............................$50,000
The following are selected 2007 transactions of Sean Astin Corporation.
a.
PREPARE JOURNAL ENTRIES for the selected transactions above.
Oct 1.
Borrowed $50,000 from the Shore Bank by signing a 12-month,
non-interest bearing $54,000 note.
Cash.............. $50,000
Discount........ $ 4,000
N/P................$54,000
B.
Prepare ADJUSTING ENTRIES.
FOR INTEREST BEARING NOTE.
Oct 1.
Issued a $50,000, 12-month, 8% note to Encino in payment of
account.
$50,000 x .08 x 3/12 = $1,000
Interest expense......................... $1,000
Interest payable.....................$1,000
B.
Prepare ADJUSTING ENTRIES.
FOR NON-INTEREST BEARING NOTE.
Oct 1.
Borrowed $50,000 from the Shore Bank by signing a 12-month,
non-interest bearing $54,000 note.
$50,000 x .08 x 3/12 = $1,000
or ($4,000 / 12) * 3 = $1,000
Interest expense......................... $1,000
Discount ...............................$1,000
C.
Compute the total net liability to be reported on the December 31 balance sheet
for:
(1)
THE INTEREST BEARING NOTE:
Interest payable..................... $ 1,000
N/P........................................ $ 50,000
-----------------------------------------------Total net liability................ $51,000
C.
Compute the total net liability to be reported on the December 31 balance sheet
for:
(1)
THE NON-INTEREST BEARING NOTE:
N/P........................... $54,000
Unamortized Disc.... $3,000 (4K- 1K)
----------------------------------------------------Net liability.............. $51,000
• 12/31/07 Kate Holmes has $7,000,000 of short-term debt
in form of n/p to Gotham Bank due periodically in 2008.
• 1/28/08, Holmes enters into refinancing agreement with
Gotham
• Can borrow up to 60% of gross amount of its A/R.
• Receivables will range between LO $6 MIL in May
to HI of $8 MIL in Oct during 2008.
• Interest on short-term debt is 15%.
• New agreement has fluctuating interest of 1% above prime
rate on notes due in 2012.
• 12/31/07 balance sheet is issued 2-15-08.
INSTRUCTIONS:
Prepare partial balance sheet for Holmes for 12/31/07 showing
how $7,000,000 of short-term debt should be presented,
including footnote disclosure.
Enterprise is REQUIRED to exclude a short-term obligation
from current liabilities only if BOTH of the following conditions
are met:
INTENDS TO REFINANCE the obligation on
long-term basis… AND...
DEMONSTRATES AN ABILITY to consummate the
refinancing.
* A financing agreement suffices
Kate Holmes Company
Partial Balance Sheet
December 31, 2007
Current liabilities:
Notes payable (Note 1)
$3,400,000
Long-term debt:
Notes payable expected to be refinanced in 2008 (Note 1)
3,600,000
Note 1.
Under a financing agreement with Gotham State Bank the Company may
borrow up to 60% of the gross amount of its accounts receivable at an interest cost of
1% above the prime rate. The Company intends to issue notes maturing in 2012 to
replace $3,600,000 of short-term, 15%, notes due periodically in 2008. Because the
amount that can be borrowed may range from $3,600,000 to $4,800,000, only
$3,600,000 of the $7,000,000 of currently maturing debt has been reclassified as longterm debt.
•Matt Broderick Co. began operations on January 2, 2006.
• 9 employees who work 8-hr days.
• Paid hourly.
• Each earns 10 paid vacation days/yr
• Each earns 6 paid sick days/yr.
• Vacation may be taken after 1/15 of year following year
earned.
• Sick days can be taken as soon as earned.
• Unused sick days accumulate.
• ADDITIONALLY
Actual Hourly
Wage Rate
2006 2007
$10
$11
Vacation Days Used
by Each Employee
2006 2007
0
9
Sick Days Used
by Each Employee
2006 2007
4
5
• Matt Broderick Co. has chosen to
• Accrue cost of compensated absences at rates of pay in effect
during period when earned.
• And to accrue sick pay when earned.
INSTRUCTIONS:
(a) Prepare journal entries to record transactions related to
compensated absences during 2006 and 2007.
(b) Compute the amounts of any liability for compensated
absences that should be reported on the balance sheet at
December 31, 2006 and 2007.
? What is the cost for vacation pay for 2006?
(1)
9 employees X $10.00/hr. X 8 hrs./day X 10 days = $7,200
? What is the cost for sick pay for 2006?
(2)
9 employees X $10.00/hr. X 8 hrs./day X 6 days = $4,320
? What is the journal entry to record both for 2006?
Wage expense………………11,520
Vacation wages/p…………… 7,200
Sick wages payable…………. 4,320
? What additional entry is needed for 2006? Sick days used
(3)
9 employees X $10.00/hr. X 8 hrs./day X 4 days = $2,880
Sick wages payable……… 2,880
Cash………………………….2,880
? What is the cost for vacation pay for 2007?
(4)
9 employees X $11.00/hr. X 8 hrs./day X 10 days = $7,920
? What is the cost for sick pay for 2007?
(5)
9 employees X $11.00/hr. X 8 hrs./day X 6 days = $4,752
? What is the journal entry to record both for 2007?
Wage expense………………12,672
Vacation wages/p…………… 7,920
Sick wages payable…………. 4,752
? How much cash goes out for vacation and sick pay in 2007?
(8)
9 employees X $11.00/hr. X 8 hrs./day X 9 days = $7,128 vacation
9 employees X $11.00/hr. X 8 hrs./day X 5 days = +3,960sick = $11,088
TOTAL CREDIT TO CASH IN JOURNAL ENTRY $11,088
By how much does sick pay payable get debited?
DR. TO SICK WAGES/P
(7)
9 employees X $10.00/hr. X 8 hrs./day X (6-4=2) days =
9 employees X $11.00/hr. X 8 hrs./day X (5-2=3) days =
$1,440
+2,376 = $3,816
5 days in total; 2 from last year, 3 from this year.
By how much vacation payable get debited?
(6) 9 employees X $10.00/hr. X 8 hrs./day X 9 days =
$6,480
all is from last year
DR. TO VACATION/P
What else gets debited?
Wage expense (for extra $1 for vacation and sick pay).
SICK PAY: 9 PEOPLE X ($11-$10) X 8HRS/DAY X 2 DAYS last yr = $144
VACATION PAY: 9 PEOPLE X ($11-$10) X 8HRS/DAY X 9 DAYS last yr = $648
$792 DR TO
WAGE EXPENSE
Wage Expense……………. $792
Sick wages payable….… $3,816
Vacation wages payable $6,480
Cash……………. $11,088
(b) Compute the amounts of any liability for compensated
absences that should be reported on the balance sheet at
December 31, 2006 and 2007.
2006
vac/p
Jan. 1 balance $0,000)
+ accrued
7,200)
– paid
( 0)
Dec. 31 balance$7,200
2007
sick/p
vac/p
sick/p
$0,000)
4,320)
(2,880)
$1,440
$7,200)
7,920)
(6,480)
$8,640
$1,440)
4,752)
(3,816)
$2,376
Green Day Hardware Company payroll for November 2007 is summarized below:
Payroll
Wages due
FICA
Amt subject to Payroll Taxes
Unemployment tax
FED
STATE
Factory
Sales
Administrative
$120,000
32,000
36,000
----------$188,000
$120,000
32,000
36,000
------------$188,000
$40,000
4,000
--------------$44,000
$40,000
4,000
------------$44,000
At this point in the year some employees have already received wages in excess of those
to which payroll taxes apply. Assume that the SUTA is 2.5%. The FICA rate is 7.65%
on an emloyees wages to $90,000 and then 1.45% in excess of $90,000. Of the
$188,000 wages subject to FICA tax, $20,000 is in excess of $90,000 to the sales
wages. FUTA tax rate is .8% after credits. Income tax withheld amounts to $16K
for factory, $7,000 for sales, and $6,000 for administrative.
A.
Prepare a schedule showing the employer's total cost of wages for November
by function.
Function:
TOTAL
FACTORY
SALES
ADMIN
Wages
$188,000
$120,000
$32,000
$36,000
Additional Costs
FICA
$13,142
$120,000 x .0765 = $9,180
$9,180
$1,208
$2,754
$36,000 x .0765 = $2,754
$32,000 in total wages ($20,000 are taxed
at 1.45%) and the rest at 7.65%.
$20,000 x .0145 = $290
+
$12,000 x .0765% = $918
---------------------------------$1,208
Function:
FUTA Wages
TOTAL
FACTORY
SALES
ADMIN
$44,000
$40,000
$4,000
$-0-
Additional Costs
FICA
FUTA
$13,142
$352
$9,180
$1,208
$2,754
$320
$32
---
$40,000 x .008 = $320
$4,000 x .008 = $32
$0 x .008
= $0
Function:
SUTA Wages
TOTAL
FACTORY
SALES
ADMIN
$44,000
$40,000
$4,000
$-0-
Additional Costs
FICA
FUTA
SUTA
$13,142
$352
$1,100
$9,180
$1,208
$2,754
$320
$32
---
$1,000
$100
---
$40,000 x .025 = $1,000
$4,000 x .025 = $100
Function:
TOTAL
FACTORY
SALES
ADMIN
Additional Costs
FICA
FUTA
SUTA
$13,142
$352
$1,100
$202,594
$9,180
$1,208
$2,754
$320
$32
---
$1,000
$100
---
$33,340
$2,754
$130,500
B.
Prepare the JOURNAL ENTRIES to record the factory, sales
and administrative payrolls including the employer's payroll
taxes.
FACTORY PAYROLL
Wages/salaries expense…….. $120,000
Withholding taxes payable………….. $16,000 (given)
FICA payable………………………….$ 9,180 (calculated)
Cash…………………………………… 94,820
Payroll Tax Expense………………..$10,500
FICA payable…………………………….$9,180 (matched above)
FUTA payable…………………………… 320 (calculated)
SUTA payable…………………………… $1000 (calculated)
B.
Prepare the JOURNAL ENTRIES to record the factory, sales
and administrative payrolls including the employer's payroll
taxes.
SALES PAYROLL
Wages/salaries expense…….. $32,000
Withholding taxes payable………….. $7,000 (given)
FICA payable………………………….$ 1,208 (calculated)
Cash…………………………………… 23,792
Payroll Tax Expense………………..$1,340
FICA payable…………………………….$1,208 (matched above)
FUTA payable…………………………… 32 (calculated)
SUTA payable…………………………… $100 (calculated)
B.
Prepare the JOURNAL ENTRIES to record the factory, sales
and administrative payrolls including the employer's payroll
taxes.
ADMINISTRATIVE PAYROLL
Wages/salaries expense…….. $36,000
Withholding taxes payable………….. $6,000 (given)
FICA payable………………………….$ 2,754(calculated)
Cash…………………………………… 27,246
Payroll Tax Expense………………..$2,754
FICA payable…………………………….$2,754 matched above
Soundgarden Company sold 200 copy making machines in 2007 for $4,000 apiece,
together with a one-year warranty. Maintenance on each machine during the
warranty period averages $330.
A.
Prepare the entries to record the sale of the machines and the related
warranty costs, assuming that the accrual method is used. Actual
warranty costs incurred in 2007 were $17,000.
To record sales of machines.
Cash………………$800,000 (200 x $4K)
Sales…………………..$800,000
To record warranty expense.
Warranty expense………$17,000
Cash……………………..$17,000 (actual charges)
Total estimated warranty charges 200 x $330 = $66,000
- $17,000 already charged
---------------------------------$49,000 addtl adjustment needed
Warranty expense… $49,000
Estimated liability under warranties…….$49,000
B.
Prepare the same using the CASH BASIS.
To record sales
Cash…………………$800,000
Sales………………..$800,000 (same cause they were all cash
sales).
To record warranty expense
Warranty expense……….$17,000
Cash…………………….$17,000 (only part paid in cash)
Jud Buechler, president of the Supporting Cast Company, has a bonus arrangement
with the company under which he receives 15% of the net income (after deducting
taxes and bonuses) each year. For the current year, the net income before
deducting either the provision for income taxes or the bonus is $299,750. The
bonus is deductible for tax purposes, and the effective tax rate may be assumed
to be 40%.
Initial formulas:
B = .15 ($299,750NI - B - T)
T = .40 ($299,750 - B) * bonus is deductible
B = .15 ($299,750 - B - .40($299,750 - B))
B = .15 ($299,750 - B - $119,900 + .4B)
B = .15 ($179,850 - .6B)
1.09B = $26,977.50
B = $26,977.50 - .09B
BONUS = $24,750
B.
Compute the appropriate provision for federal income taxes.
T = .40 ($299,750 - B)
T = .40 ($299,750 - $24,750)
T = .40 ($275,000)
T = $110,000
C.
JOURNAL ENTRY to record bonus (accrued).
Bonus expense………….. $24,750
Bonus payable…………….$24,750