E 13-1How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay CURRENT LIABILITY (b) Estimated taxes payable CURRENT.

E 13-1 How would each of the following items be reported onthe balance sheet?

(a) Accrued vacation pay

CURRENT LIABILITY

(b) Estimated taxes payable

CURRENT LIABILITY

© Service warranties on appliance salesCURRENT 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 ofa 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 fromcurrent 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 INVENTORYSYSTEM.

Purchases................. $50,000A/P........................... $50,000



Oct 1. Issued a $50,000, 12-month, 8% note to Encino in payment ofaccount.

A/P................. $50,000N/P..............................$50,000



Oct 1. Borrowed $50,000 from the Shore Bank by signing a 12-month,non-interest bearing $54,000 note.

Cash.............. $50,000Discount........ $ 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 ofaccount.

$50,000 x .08 x 3/12 = $1,000

Interest expense......................... $1,000Interest payable.....................$1,000

B. Prepare ADJUSTING ENTRIES.

FOR NON-INTEREST BEARING NOTE.

$50,000 x .08 x 3/12 = $1,000

Interest expense......................... $1,000Discount ...............................$1,000

Oct 1. Borrowed $50,000 from the Shore Bank by signing a 12-month,non-interest bearing $54,000 note.

or ($4,000 / 12) * 3 = $1,000

C. Compute the total net liability to be reported on the December 31 balance sheetfor:

(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 sheetfor:

(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 debtin 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 showinghow $7,000,000 of short-term debt should be presented, including footnote disclosure.

Enterprise is REQUIRED to exclude a short-term obligationfrom current liabilities only if BOTH of the following conditionsare met:

INTENDS TO REFINANCE the obligation onlong-term basis… AND...

DEMONSTRATES AN ABILITY to consummate the refinancing.

* A financing agreement suffices

Kate Holmes CompanyPartial Balance SheetDecember 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 long-term 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 Vacation Days Used Sick Days UsedWage Rate by Each Employee by Each Employee2006 2007 2006 2007 2006 2007$10 $11 0 9 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 tocompensated absences during 2006 and 2007.

(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet atDecember 31, 2006 and 2007.

(1) 9 employees X $10.00/hr. X 8 hrs./day X 10 days = $7,200

? What is the cost for vacation pay for 2006?


? What is the cost for sick pay for 2006?

? What is the journal entry to record both for 2006?

Wage expense………………11,520

Vacation wages/p…………… 7,200Sick wages payable…………. 4,320

? What additional entry is needed for 2006?


Sick wages payable……… 2,880Cash………………………….2,880

Sick days used

? What is the cost for vacation pay for 2007?

? What is the cost for sick pay for 2007?

? What is the journal entry to record both for 2007?

Wage expense………………12,672

Vacation wages/p…………… 7,920Sick 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 vacation9 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?

(7) 9 employees X $10.00/hr. X 8 hrs./day X (6-4=2) days = $1,4409 employees X $11.00/hr. X 8 hrs./day X (5-2=3) days = +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 = $6,480all is from last year

What else gets debited?

Wage expense (for extra $1 for vacation and sick pay).

DR. TO SICK WAGES/P

DR. TO VACATION/P

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

(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet atDecember 31, 2006 and 2007.

Sick wages payable….… $3,816

Vacation wages payable $6,480

Cash……………. $11,088

Wage Expense……………. $792

Jan. 1 balance $0,000) $0,000) $7,200) $1,440)+ accrued 7,200) 4,320) 7,920) 4,752)– paid ( 0) (2,880) (6,480) (3,816)Dec. 31 balance$7,200 $1,440 $8,640 $2,376

2006 2007vac/p sick/p vac/p sick/p

Green Day Hardware Company payroll for November 2007 is summarized below:

Amt subject to Payroll TaxesUnemployment tax

Payroll Wages due FICA FED STATE

Factory $120,000 $120,000 $40,000 $40,000Sales 32,000 32,000 4,000 4,000Administrative 36,000 36,000 --- ---

----------- ------------- ------------- -----------$188,000 $188,000 $44,000 $44,000

At this point in the year some employees have already received wages in excess of thoseto 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 saleswages. FUTA tax rate is .8% after credits. Income tax withheld amounts to $16Kfor factory, $7,000 for sales, and $6,000 for administrative.

A. Prepare a schedule showing the employer's total cost of wages for Novemberby function.

Function: TOTAL FACTORY SALES ADMIN

Wages $188,000 $120,000 $32,000 $36,000

Additional CostsFICA

$120,000 x .0765 = $9,180

$9,180

$32,000 in total wages ($20,000 are taxedat 1.45%) and the rest at 7.65%.

$20,000 x .0145 = $290+$12,000 x .0765% = $918----------------------------------

$1,208

$1,208

$36,000 x .0765 = $2,754

$2,754$13,142


FUTA Wages $44,000 $40,000 $4,000 $-0-

Additional CostsFICA $9,180 $1,208 $2,754$13,142

FUTA

$40,000 x .008 = $320

$320

$4,000 x .008 = $32

$32 ---$352

$0 x .008= $0


SUTA Wages $44,000 $40,000 $4,000 $-0-


FUTA $320 $32 ---$352

SUTA

$40,000 x .025 = $1,000

$1,000

$4,000 x .025 = $100

$100$1,100 ---



FUTA $320 $32 ---$352

SUTA$1,000 $100$1,100 ---

$202,594 $130,500 $33,340 $2,754

B. Prepare the JOURNAL ENTRIES to record the factory, salesand administrative payrolls including the employer's payrolltaxes.

FACTORY PAYROLL

Wages/salaries expense…….. $120,000Withholding taxes payable………….. $16,000 (given)FICA payable………………………….$ 9,180 (calculated)Cash…………………………………… 94,820

Payroll Tax Expense………………..$10,500FICA payable…………………………….$9,180 (matched above)FUTA payable…………………………… 320 (calculated)SUTA payable…………………………… $1000 (calculated)


SALES PAYROLL

Wages/salaries expense…….. $32,000Withholding taxes payable………….. $7,000 (given)FICA payable………………………….$ 1,208 (calculated)Cash…………………………………… 23,792

Payroll Tax Expense………………..$1,340FICA payable…………………………….$1,208 (matched above)FUTA payable…………………………… 32 (calculated)SUTA payable…………………………… $100 (calculated)


ADMINISTRATIVE PAYROLL

Wages/salaries expense…….. $36,000Withholding taxes payable………….. $6,000 (given)FICA payable………………………….$ 2,754(calculated)Cash…………………………………… 27,246

Payroll Tax Expense………………..$2,754FICA 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 thewarranty period averages $330.

A. Prepare the entries to record the sale of the machines and the relatedwarranty costs, assuming that the accrual method is used. Actualwarranty 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………$17,000Cash……………………..$17,000 (actual charges)

Total estimated warranty charges 200 x $330 = $66,000- $17,000 already charged----------------------------------$49,000 addtl adjustment needed

Warranty expense… $49,000Estimated liability under warranties…….$49,000

B. Prepare the same using the CASH BASIS.

To record sales

Cash…………………$800,000Sales………………..$800,000 (same cause they were all cash

sales).

To record warranty expense

Warranty expense……….$17,000Cash…………………….$17,000 (only part paid in cash)

Jud Buechler, president of the Supporting Cast Company, has a bonus arrangementwith the company under which he receives 15% of the net income (after deductingtaxes and bonuses) each year. For the current year, the net income beforededucting either the provision for income taxes or the bonus is $299,750. Thebonus is deductible for tax purposes, and the effective tax rate may be assumedto 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) B = $26,977.50 - .09B

1.09B = $26,977.50

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………….. $24,750Bonus payable…………….$24,750

E 13-1How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay CURRENT LIABILITY (b) Estimated taxes payable CURRENT.

Documents

current liability slide

payable slide

current liability b

longterm slide

longterm liability

payable note

current liabilities

current liability o