Accounting Assignment 11.1 and
Assignment 11.2
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1
Assignment
11.1 Handout
1.
On August 31, 2010, Gordon, Co., purchased $7,000 of inventory on a one-year,
12% note
payable.
Requirements
R1.
Journalize the company’s accrual of interest expense on February 28, 2011,
their fiscal yearend.
R2.
Journalize the company’s payment of the note plus interest on August 31, 2011.
2.
Catskills Corporation guarantees its snowmobiles for three years. Company
experience
indicates
that warranty costs will add up to 5% of sales. Assume that the Catskills
dealer in
Colorado
Springs made sales totaling $519,000 during 2011. The company received cash for
20%
of the sales and notes receivable for the remainder. Warranty payments totaled
$19,000
during
2011.
Requirements
R1.
Record the sales, warranty expense, and warranty payments for the company.
R2.
Post to the Estimated warranty payable T-account. At the end of 2011, how much
in
Estimated
warranty payable does the company owe?
3.
Farley Motors, Inc., a motorcycle manufacturer, included the following note
(adapted) in its
annual
report:
Requirements
R1.
Why are these contingent (versus real) liabilities?
R2.
How can a contingent liability become a real liability for Farley Motors? What
are the limits to
the
company’s product liabilities in the United States?
4.
Gina Tarver is paid $720 for a 40-hour workweek and time-and-a-half for hours
above 40.
Requirements
R1.
Compute Tarver’s gross pay for working 52 hours during the first week of
February.
R2.
Tarver is single, and her income tax withholding is 20% of total pay. Tarver’s
only payroll
deductions
are payroll taxes. Compute Tarver’s net (take-home) pay for the week. Use an 8%
FICA
tax rate, and carry amounts to the nearest cent.
5.
Return to the Gina Tarver payroll situation in Short Exercise 10-4. Tarver’s
employer, College
of
St. Mary, pays all the standard payroll taxes plus benefits for employee
retirement plan (4% of
total
pay), health insurance ($105 per employee per month), and disability insurance
($11 per
employee
per month).
Requirement
R1.
Compute College of St. Mary’s total expense of employing Gina Tarver for the 52
hours that
she
worked during the first week of February. Carry amounts to the nearest cent.
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6.
Suppose you work for DePetro-Carr, the accounting firm, all year and earn a
monthly salary of
$6,800.
There is no overtime pay. Your withheld income taxes consume 25% of gross pay.
In
addition
to payroll taxes, you elect to contribute 6% monthly to your retirement plan.
DePetro-Carr
also
deducts $110 monthly for your co-pay of the health insurance premium.
Requirement
R1.
Compute your net pay for November. Use an 8% FICA tax rate.
7.
Consult your solutions for problems #4 and #5.
Requirements
R1.
Journalize salary expense for College of St. Mary related to the employment of
Gina Tarver.
R2.
Journalize benefits expense for College of St. Mary related to the employment
of Gina
Tarver.
R3.
Journalize employer payroll taxes for College of St. Mary related to the
employment of Gina
Tarver.
8.
Consider the following note payable transactions of Crandell Video Productions.
Requirement
R1.
Journalize the transactions for the company.
9.
The accounting records of Earthtone Ceramics included the following at December
31, 2011:
In
the past, Earthtone’s warranty expense has been 5% of sales. During 2012,
Earthtone made
sales
of $115,000 and paid $4,000 to satisfy warranty claims.
Requirements
R1.
Journalize Earthtone’s warranty expense and warranty payments during 2012.
Explanations
are
not required.
R2.
What balance of Estimated warranty payable will Earthtone report on its balance
sheet at
December
31, 2012?
10.
Juan’s Mexican Restaurants incurred salary expense of $62,000 for 2009. The
payroll
expense
includes employer FICA tax of 8%, in addition to state unemployment tax of 5.4%
and
federal
unemployment tax of 0.8%. Of the total salaries, $19,000 is subject to
unemployment tax.
Also,
the company provides the following benefits for employees: health insurance
(cost to the
company,
$2,040), life insurance (cost to the company, $380), and retirement benefits
(cost to the
company,
5% of salary expense).
Requirement
R1.
Record Juan’s expenses for employee benefits and for payroll taxes.
Explanations are not
required.
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11.
The following transactions of Brewton Pharmacies occurred during 2010 and 2011:
Requirement
R1.
Journalize the transactions in Brewton’s general journal. Explanations are not
required.
12.
Logan White is general manager of Moonwalk Tanning Salons. During 2010, White
worked
for
the company all year at a $6,100 monthly salary. He also earned a year end
bonus equal to
5%
of his salary. White’s federal income tax withheld during 2010 was $810 per
month, plus $932
on
his bonus check. State income tax withheld came to $80 per month, plus $70 on
the bonus.
The
FICA tax withheld was 8% of the first $90,000 in annual earnings. White
authorized the
following
payroll deductions: United Fund contribution of 1% of total earnings and life
insurance of
$20
per month. Moonwalk incurred payroll tax expense on White for FICA tax of 8% of
the first
$90,000
in annual earnings. The company also paid state unemployment tax of 5.4% and
federal
unemployment
tax of 0.8% on the first $7,000 in annual earnings. In addition, Moonwalk
provides
White
with health insurance at a cost of $110 per month. During 2010, Moonwalk paid
$2,000 into
White’s
retirement plan.
Requirements
R1.
Compute White’s gross pay, payroll deductions, and net pay for the full year
2010. Round all
amounts
to the nearest dollar.
R2.
Compute Moonwalk’s total 2010 payroll expense for White.
R3.
Make the journal entry to record Moonwalk’s expense for White’s total earnings
for the year,
his
payroll deductions, and net pay. Debit Salary expense and Bonus expense as
appropriate.
Credit
liability accounts for the payroll deductions and Cash for net pay. An
explanation is not
required.
13.
The accounting records of Path Leader Wireless include the following:
Requirement
R1.
Report these liabilities on the Path Leader Wireless balance sheet, including
headings and
totals
for current liabilities and long-term liabilities.
Assignment
11.2 Handout
Decision
Case
Sell-Soft
Corporation is the defendant in numerous lawsuits claiming unfair trade
practices. SellSoft
has
strong incentives not to disclose these contingent liabilities. However, GAAP
requires
that
companies report their contingent liabilities.
Requirements
R1.
Why would a company prefer not to disclose its contingent liabilities?
R2.
Describe how a bank could be harmed if a company seeking a loan did not
disclose its
contingent
liabilities.
R3.
What ethical tightrope must companies walk when they report contingent
liabilities?
Financial
Statement Case
Details
about a company’s liabilities appear in a number of places in the annual
report. Use the
2009
Amazon.com Financial Statements handout, including Note 1, to answer the
following
questions.
Requirements
R1.
Give the breakdown of Amazon.com’s current liabilities at December 31, 2009.
Give the
January
2010 entry to record the payment of accrued expenses and other current
liabilities that
Amazon
owed at December 31, 2009. (Please assume the entire balance of this item
represents
accrued
expenses.)
R2.
At December 31, 2009, how much did Amazon report for unearned revenue that
Amazon
had collected in advance? Which account on the balance sheet reports this
liability?
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