Solution manual financial accounting 4e by wild chapter09

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Chapter 9
Reporting and Analyzing
Current Liabilities
QUESTIONS
1.

The three questions are: (1) Who must be paid? (2) When is payment due? (3) How
much is to be paid?

2.

A current liability is expected to be paid within one year or the company’s operating
cycle, whichever is longer. Any liability that is not current is considered to be long
term.

3.

An estimated liability is an obligation to make a future payment, the exact amount of
which is uncertain, but it is capable of being reasonably estimated.

4.

The amount of the sale for the item only is $950 ($988/1.04).

5.

The combined Social Security tax rate (assuming the maximum wage amount is not
yet reached) is 12.4% (6.2% + 6.2%). The maximum level of earnings [wage base on
which taxes are due] for 2006 is $94,200.

6.

The Medicare tax rate is 1.45%. This rate is applied to all wages earned by an
employee—no maximum limit exists.

7.

An employee’s gross earnings along with the number of withholding allowances that
an employee claims, as well as whether they are married or single, determine the
amount deducted for federal income taxes.

8.

The employee is responsible for federal income taxes, state income taxes, local
income taxes (if any), and the employee portion of the FICA taxes. The employer is
responsible for both federal and state unemployment taxes and the employer
portion of the FICA taxes.

9.

An unemployment merit rating is based on an evaluation of an employer’s
experience in creating or avoiding unemployment with its employees. The merit
rating affects the state unemployment taxes that the employer must pay. Merit
ratings cause more of the cost of unemployment benefits to be paid by those who
create more unemployment.

10. The obligation to correct or replace defective products (or services) is created when
the products are sold with the warranties. Even though the seller does not know
with certainty when the obligation will be paid, to whom it will be paid, or the amount

to be paid, past experience shows that some amount will probably be paid. If the
seller can reasonably estimate that amount, the warranty liability must be reported
on the balance sheet.

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11. There are no conditions in which a probable loss tied to a future event can create a
liability, regardless of its probability. A liability is an obligation created by a past
event, not by a future event. If a disaster occurs, the company must report the loss
in the period when it occurs.
12.A A wage bracket withholding table shows for a pay period of a given length (weekly,
biweekly, semimonthly, monthly), the amounts of federal income taxes to be
withheld from the pay of an employee, at varying amounts of gross pay and varying
numbers of withholding allowances.
13.A Single employee earning $725 with two allowances has $76 taxes withheld.
Single employee earning $625 with no allowances has $81 taxes withheld.
14. At February 26, 2005, Best Buy reports ―Accrued compensation and related
expenses‖ in the amount of $234,000,000.
15. Circuit City has two income-tax-related assets on its balance sheet, and two incometax-related liabilities. One account is a current Deferred income taxes asset account
and another is a noncurrent deferred income taxes asset account. Deferred tax
assets are accounts that represent income taxes that the company has paid before
the taxes have been reported on the income statement as income tax expenses. The
current liabilities include Deferred income taxes as well. These represent income
taxes that the company has reported on its income statement as income tax expense

before they have paid the taxes. The final income-tax-related liability is Accrued
income taxes. This represents taxes that must be paid to the government in the
short term.
16. At September 25, 2004, Apple reports three current liabilities: Accounts payable,
Accrued expenses, and Current debt.

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QUICK STUDIES
Quick Study 9-1 (5 minutes)
Items 3, 4, 5 and 6 are current liabilities for this company.

Quick Study 9-2 (10 minutes)
Oct. 31

Cash ..........................................................................
5,000,000
Unearned Ticket Revenue .................................

5,000,000

To record sales in advance of concerts.

Nov. 5

Unearned Ticket Revenue .......................................
1,250,000
Earned Ticket Revenue .....................................

1,250,000

To record concert revenues earned.

Quick Study 9-3 (10 minutes)
Sept. 30 Cash ..........................................................................6,300
Sales ...................................................................
Sales Taxes Payable .........................................

6,000
300

To record cash sales and 5% sales tax.

Sept. 30 Cost of Goods Sold .................................................3,900
Merchandise Inventory .....................................

3,900

th

To record cost of Sept. 30 sales.

Oct. 15 Sales Taxes Payable ............................................... 300
Cash ....................................................................

300

To record remittance of sales taxes to govt.

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Quick Study 9-4 (15 minutes)
1.

Computation of interest payable at December 31, 2008:
Days from November 7 to December 31 .................... 54 days
Accrued interest (8% x $160,000 x 54/360) ................ $1,920

2. 2008
Dec.31 Interest Expense ...................................................... 1,920
Interest Payable ................................................

1,920

To record accrued interest (8% x $160,000 x 54/360).

3. 2009
Feb. 5 Interest Expense ...................................................... 1,280

Interest Payable ....................................................... 1,920
Notes Payable ..........................................................160,000
Cash ....................................................................

163,200

To record payment of note plus interest
(8% x $160,000 x 90/360).

Quick Study 9-5 (15 minutes)
[Note: Two months (January and February) of earnings have
already been recorded for each of the 5 employees.]

Mar. 31

Payroll Taxes Expense ............................................ 1,316.25
FICA—Social Security Taxes Payable1 ............
FICA—Medicare Taxes Payable2 .......................
State Unemployment Taxes Payable3 ..............
Federal Unemployment Taxes Payable4 ..........

775.00
181.25
280.00
80.00

To record employer payroll taxes.
$12,500 x 6.2% = $775.00
2
$12,500 x 1.45% = $181.25

3
[5 x ($7,000 - ($2,500 x 2))] x 2.8% = $280.00
4
[5 x ($7,000 - ($2,500 x 2))] x 0.8% = $80.00
1

Quick Study 9-6 (5 minutes)
Vacation Benefits Expense .....................................
Vacation Benefits Payable ..............................

500
500

To record vacation benefits accrued.

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Quick Study 9-7 (5 minutes)
Dec. 31 Employee Bonus Expense ...................................... 15,000
Bonus Payable .................................................

15,000

To record expected bonus costs.

Quick Study 9-8 (10 minutes)
2008

July 24

Estimated Warranty Liability ..................................
Repair Parts Inventory .......................................

55
55

To record cost of warranty repairs.

Quick Study 9-9 (10 minutes)
1. (b); reason—is reasonably estimated but not a probable loss.
2. (b); reason—probable loss but cannot be reasonably estimated.
3. (a); reason—can be reasonably estimated and loss is probable.

Quick Study 9-10 (10 minutes)
Times interest earned =

$1,885,000
$145,000

= 13 times

Interpretation: This company’s times interest earned ratio of 13 exceeds (is
superior to) its competitors’ average ratio of 4.0. Moreover, a times interest
earned of 13 suggests sufficient income to cover interest obligations.

Quick Study 9-11B (10 minutes)
Dec. 31

Income Taxes Expense ........................................... 40,000
Income Taxes Payable ......................................
Deferred Income Tax Liability ..........................

34,000
6,000

To record tax expense and deferred tax liability.

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EXERCISES
Exercise 9-1 (10 minutes)
1.

C

3.

C

5.

L

7.

N

9.

C

2.

L

4.

C

6.

C

8.

C

10.

C

Warranty Expense....................................................
Estimated Warranty Liability ............................

5,440

Exercise 9-2 (15 minutes)
[Note: All entries dated December 31, 2008.]

1.

5,440

To record warranty expense [4,000 units x 8% x $17].

2.

3.

No adjusting entry can be made since the loss cannot be reasonably
estimated. Disclosure of the suit as a contingent liability should be made
in the notes to the financial statements.

Vacation Benefits Expense .....................................
Vacation Benefits Payable ................................

3,000
3,000

To record vacation benefits expense
[20 employees x 1 day x $150].

4.

No adjusting entry is required since it is not probable that the supplier will
default on the debt. The guarantor, Casco Company, should describe the
guarantee in its financial statement notes as a contingent liability.

5.

Cash .................................................................................
787,500
Sales ...........................................................................
Sales Taxes Payable .................................................

750,000
37,500

To record sales and sales taxes.

Cost of Goods Sold .........................................................
500,000
Merchandise Inventory .............................................

500,000

To record cost of sales.

6.

Unearned Services Revenue ..........................................75,000
Earned Services Revenue ........................................

75,000

To record product revenue earned.

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Exercise 9-3 (15 minutes)
1.

B
= 0.03 ($500,000 – B)
B
= $15,000 – 0.03B
1.03B = $15,000
B
= $14,563 (rounded to nearest dollar)

2.
2008

Dec. 31

Employee Bonus Expense ................................
Bonus Payable ..........................................

14,563
14,563

To record expected bonus costs.

3.
2009
Jan. 19

Bonus Payable ....................................................
Cash ...........................................................

14,563
14,563

To record payment of bonus.

Exercise 9-4 (30 minutes)
1.

Maturity date = May 15 + 60 days = July 14, 2008

2a.
May 15

Cash ..........................................................................104,000
Notes Payable ....................................................
104,000
Borrowed cash by issuing an interest-bearing note.

2b.
July 14

Interest Expense* .................................................... 2,080
Notes Payable ..........................................................104,000
Cash ....................................................................
106,080
Repaid note plus interest.
* Principal ..............................
$104,000
x Interest rate......................... 12%
x Fraction of year .................. 60/360
Total interest..........................$ 2,080

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Exercise 9-5 (30 minutes)
1.

Maturity date = November 1 + 90 days = January 30, 2009.

2.

Principal ..................................................... $200,000
x Interest rate .............................................
9%
x Fraction of year (Nov. 1 – Dec. 31)........ 60/360
Total interest in 2008 .................................$ 3,000

3.

Principal ..................................................... $200,000
x Interest rate .............................................
9%
x Fraction of year (Jan. 1 – Jan. 30)......... 30/360
Total interest in 2009 .................................$ 1,500

4a.
2008
Nov. 1

Cash ..........................................................................200,000
Notes Payable ....................................................
200,000
Borrowed cash by issuing an interest-bearing note.

4b.
2008
Dec. 31

Interest Expense ...................................................... 3,000
Interest Payable .................................................

3,000

Accrued interest on note payable.

4c.
2009
Jan. 30

Interest Expense ...................................................... 1,500
Interest Payable ....................................................... 3,000
Notes Payable ..........................................................200,000
Cash ....................................................................
204,500
Repaid note plus interest.

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Exercise 9-6 (20 minutes)
Subject
to Tax

Rate

Tax

Explanation

a.
FICA--Social Security ........... $ 900

6.20%

FICA—Medicare.....................

900

1.45

13.05 Full amount is subject to tax.

FUTA..........................................

200

0.80

1.60 $700 is over the maximum.

SUTA..........................................

200

2.90

5.80 $700 is over the maximum.

$ 55.80 Full amount is subject to tax.

b.
FICA--Social Security ........... $2,200

6.20% $136.40 Full amount is subject to tax.

FICA—Medicare.....................

2,200

1.45

FUTA..........................................

0

0.80

0.00 Full amount is over maximum.

SUTA..........................................

0

2.90

0.00 Full amount is over maximum.

31.90 Full amount is subject to tax.

c.
FICA--Social Security ........... $5,000

6.20%

FICA—Medicare.....................

8,000

1.45

FUTA..........................................

0

0.80

0.00 Full amount is over maximum.

SUTA..........................................

0

2.90

0.00 Full amount is over maximum.

$310.00 $3,000 is over the maximum.
116.00 Full amount is subject to tax.

Exercise 9-7 (20 minutes)
(1)
Sept. 30 Salaries Expense ..................................................... 900.00
FICA—Social Security Taxes Payable .............
FICA—Medicare Taxes Payable .......................
Employee Federal Income Taxes Payable .........
Accrued Payroll Payable ...................................

55.80
13.05
150.00
681.15

To record payroll for pay period ended September 30.

(2)
Sept. 30 Payroll Taxes Expense ............................................ 76.25
FICA—Social Security Taxes Payable .............
FICA—Medicare Taxes Payable .......................
Federal Unemployment Taxes Payable ...........
State Unemployment Taxes Payable ...............

55.80

13.05
1.60
5.80

To record employer payroll taxes.
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Exercise 9-8 (25 minutes)
1. Warranty Expense = 4% of dollar sales = 4% x $6,000 = $240
2. The December 31, 2008, balance of the liability equals the expense
because no repairs are provided in 2008. Therefore, the ending balance
of the Estimated Warranty Liability account is $240.
3. The company should report no additional warranty expense in 2009 for
this copier.
4. The December 31, 2009, balance of the Estimated Warranty Liability
account equals the 2009 beginning balance minus the costs incurred in
2009 to repair the copier:
Ending 2008 balance ....................... $240
Less parts cost ................................
(209)
Ending 2009 balance ....................... $ 31
5. Journal entries
2008
(a)

Aug. 16 Cash ..........................................................................
Sales ...................................................................

6,000
6,000

To record cash sale of copier.

Aug. 16 Cost of Goods Sold .................................................
Merchandise Inventory .....................................

4,800
4,800

To record cost of August 16 sale.

(b)
Dec. 31 Warranty Expense ...................................................
Estimated Warranty Liability ............................

240
240

To record warranty expense for copier sold in 2008.

2009
(c)
Nov. 22 Estimated Warranty Liability ..................................
Repair Parts Inventory ......................................

209
209

To record cost of warranty repairs.

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Exercise 9-9 (15 minutes)
(a)
Numerator
Income before
interest & taxes .... $194,000

(b)

(c)

(d)

(e)

(f)

$176,000

$182,000

$379,000

$103,000 $ 5,000

$ 16,000

$ 12,000

$ 14,000

$ 14,000 $10,000

11.00

15.17

27.07

Denominator
Interest expense ......$ 44,000

Ratio......................

4.41

7.36

0.50

Analysis: Company (d) has the strongest ability to pay interest expense as
it comes due as evidenced by the company’s times interest earned
(coverage) ratio of 27.07 times.
Exercise 9-10A (15 minutes)
Gross Pay ............................................................................
Social Security tax deduction (6.2%) ................................ $ 44.95
Medicare tax deduction (1.45%) ........................................
10.51
Income tax deduction (from Exhibit 9A.6) ........................
91.00
Total deductions .................................................................
Net Pay .................................................................................

$725.00

146.46
$578.54

Note: Keisha LeShon is not subject to state income tax because her cumulative
earnings from the previous pay period exceed the $9,000 maximum.

Exercise 9-11A (15 minutes)
Regular pay (48 hours @ $14) ...........................................
Overtime premium pay (8 hours @ $7.00) ........................
Gross pay ..........................................................................
FICA—Social Security tax deduction (6.2%) .................... $ 45.14
FICA—Medicare tax deduction (1.45%) ............................
10.56

Income tax deduction (from Exhibit 9A.6) ........................
76.00
Total deductions ...............................................................
Net pay .................................................................................

$672.00
56.00
728.00

131.70
$596.30

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Exercise 9-12B (25 minutes)
1.

Income Taxes Payable (target balance) ...............................................
$28,300
Total accrued [($28,600 + $19,100 + $34,600) x .30] ............................
24,690
Adjustment (additional expense) ..........................................................
$ 3,610

2.
2008
(a)
Dec. 31 Income Tax Expense ................................................ 3,610
Income Taxes Payable .......................................

3,610

To adjust tax expense and liability.

2009
Jan. 20

(b)
Income Taxes Payable ............................................. 28,300
Cash .....................................................................

28,300

To make the final quarterly payment
of income taxes for 2008.

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PROBLEM SET A
Problem 9-1A (45 minutes)
Locust

1.

2.

3.

4.

Natl. Bank

Maturity dates
Date of the note .............................. May 19
Term of the note (in days) .............
90
Maturity date...................................Aug. 17

July 8
120
Nov. 5

Interest due at maturity
Principal of the note ......................$35,000
Annual interest rate ....................... 10%
Fraction of year .............................. 90/360
Interest expense.............................$ 875

$80,000
9%
120/360
$ 2,400

Accrued interest on Fargo note at the end of 2007
Total interest for note ....................................................
Fraction of term in 2007 ................................................
Accrued interest expense .............................................

Interest on Fargo note in 2008
Total interest for note ....................................................
Fraction of term in 2008 ................................................
Interest expense in 2008 ...............................................

Fargo

Nov. 28
60
Jan. 27

$42,000
8%
60/360
$ 560

$

560
33/60

$ 308

$

560
27/60
$ 252

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Problem 9-1A (Concluded)
5.
2007
Apr. 20 Merchandise Inventory ........................................... 40,250
Accounts Payable—Locust ..............................

40,250

Purchased merchandise on credit.

May 19 Accounts Payable—Locust .................................... 40,250
Cash ....................................................................
Notes Payable—Locust .....................................

5,250
35,000

Paid $5,250 cash and gave a 90-day,
10% note to extend due date on account.

July 8 Cash .......................................................................... 80,000
Notes Payable—National ..................................

80,000

Borrowed cash with a 120-day, 9% note.

Aug. 17 Interest Expense ......................................................
875
Notes Payable—Locust ........................................... 35,000
Cash ....................................................................

35,875

Paid note with interest.

Nov. 5 Interest Expense ...................................................... 2,400
Notes Payable—National ........................................ 80,000
Cash ....................................................................

82,400

Paid note with interest.

28 Cash .......................................................................... 42,000
Notes Payable—Fargo Bank .............................

42,000

Borrowed cash with 60-day, 8% note.

Dec. 31 Interest Expense ......................................................
Interest Payable .................................................

308
308

Accrued interest on note payable.

2008
Jan. 27 Interest Expense ......................................................
252
Notes Payable—Fargo Bank ................................... 42,000
Interest Payable ......................................................
308
Cash ....................................................................

42,560

Paid note with interest.

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Problem 9-2A (40 minutes)
1.
2007
Nov. 11 Cash ..........................................................................
Sales ...................................................................

7,875
7,875

Sold razors to customers.

11 Cost of Goods Sold .................................................
Merchandise Inventory .....................................

2,100
2,100

To record cost of November 11 sale (105 x $20).

30 Warranty Expense ...................................................
Estimated Warranty Liability ............................

630
630

To record razor warranty expense
and liability at 8% of selling price.

Dec. 9 Estimated Warranty Liability ..................................
Merchandise Inventory .....................................

300
300

To record cost of razor warranty
replacements (15 x $20).

16 Cash .......................................................................... 16,500
Sales ...................................................................

16,500

Sold razors to customers.

16 Cost of Goods Sold .................................................
Merchandise Inventory .....................................

4,400
4,400

To record cost of December 16 sale (220 x $20).

29 Estimated Warranty Liability ..................................
Merchandise Inventory .....................................

600
600

To record cost of razor warranty
replacements (30 x $20).

31 Warranty Expense ...................................................
Estimated Warranty Liability ............................

1,320
1,320

To record razor warranty expense
and liability at 8% of selling price.

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Problem 9-2A (Concluded)
2008
Jan. 5 Cash .......................................................................... 11,250
Sales ...................................................................

11,250

Sold razors to customers.

5 Cost of Goods Sold .................................................
Merchandise Inventory .....................................

3,000
3,000

To record cost of January 5 sale (150 x $20).

17 Estimated Warranty Liability ..................................
Merchandise Inventory .....................................

1,000
1,000

To record cost of razor warranty
replacements (50 x $20).

31 Warranty Expense ...................................................
Estimated Warranty Liability ............................

900
900

To record razor warranty expense
and liability at 8% of selling price.

2.

Warranty expense for November 2007 and December 2007
Sales
Percent Warranty Expense
November .................
$ 7,875
8%
$ 630
December..................
16,500
8
1,320
Total ..........................
$24,375
$1,950

3.

Warranty expense for January 2008
Sales in January .............................. $11,250
Warranty percent .............................
8%
Warranty expense ........................... $ 900

4.

Balance of the estimated liability as of December 31, 2007
Warranty expense for November .................................... $ 630
Warranty expense for December .................................... 1,320
Cost of replacing items in December (45 x $20) ...........
(900)

Estimated Warranty Liability balance ............................ $1,050
1,050
Balance of the estimated liability as of January 31, 2008
Beginning balance .......................................................... $1,050
Warranty expense for January ......................................
900
Cost of replacing items in January (50 x $20) .............. (1,000)
Estimated Warranty Liability balance ........................... $ 950

5.

credit
credit
debit
credit

credit
credit
debit
credit

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Problem 9-3A (60 minutes)

1.

Miller Company
Income before interest & taxes

Interest expense
2.

=

= 3.33

$400,000
$260,000

= 1.54

Weaver Company
Income before interest & taxes

Interest expense
3.

$200,000
$60,000

=

Sales increase by 30% (multiply prior sales by 1.3)
Miller Co. Weaver Co.

Sales............................................. $1,300,000
$1,300,000
Variable expenses ...................... 1,040,000
780,000
Income before interest ...............
260,000
520,000
Interest expense (fixed) ..............
60,000
260,000
Net income................................... $ 200,000
Net income increases by* ..........

$ 260,000

43%

86%

* Computed as the increase in net income divided by prior net income.

4.

Sales increase by 50% (multiply prior sales by 1.5)
Miller Co. Weaver Co.
Sales............................................. $1,500,000
$1,500,000
Variable expenses ...................... 1,200,000
900,000
Income before interest ...............

300,000
600,000
Interest expense (fixed) ..............
60,000
260,000
Net income................................... $ 240,000
$ 340,000
Net income increases by ............

5.

71%

143%

Sales increase by 80% (multiply prior sales by 1.8)
Miller Co. Weaver Co.
Sales............................................. $1,800,000
$1,800,000
Variable expenses ...................... 1,440,000
1,080,000
Income before interest ...............
360,000
720,000
Interest expense (fixed) ..............
60,000
260,000
Net income................................... $ 300,000
$ 460,000
Net income increases by ............

114%

229%

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Problem 9-3A (Concluded)
6.

Sales decrease by 10% (multiply prior sales by 0.9)
Miller Co. Weaver Co.
Sales........................................
$900,000
$900,000
Variable expenses .................
720,000
540,000
Income before interest ..........
180,000
360,000
Interest expense (fixed) .........
60,000
260,000

Net income..............................
$120,000
$100,000
Net income decreases by ......

7.

-29%

-57%

Sales decrease by 40% (multiply prior sales by 0.6)
Miller Co. Weaver Co.
Sales........................................
$600,000
$600,000
Variable expenses .................
480,000
360,000
Income before interest ..........
120,000
240,000
Interest expense (fixed) .........
60,000
260,000
Net income..............................
$ 60,000
$ (20,000)
Net income decreases by ......

9.

-29%

Sales decrease by 20% (multiply prior sales by 0.8)
Miller Co. Weaver Co.
Sales........................................
$800,000
$800,000
Variable expenses .................
640,000
480,000
Income before interest ..........
160,000
320,000
Interest expense (fixed) .........
60,000
260,000
Net income..............................
$100,000
$ 60,000
Net income decreases by ......

8.

-14%

-57%

-114%

The higher fixed cost strategy (having more fixed interest expense) of
Weaver Co. accentuates the effects of increases and decreases in sales.
That is, increases in sales produce greater increases in net income and
decreases in sales produce greater decreases in net income. The
higher fixed cost strategy of Weaver Co. is indicated by a lower value of
the times interest earned ratio.
The higher fixed cost strategy works fine if the sales level increases.
Weaver Co. enjoys greater percent increases in its net income because
it has made this choice (see parts 3, 4, and 5).
The lower fixed cost strategy protects the company if the sales level
decreases. Miller Co. experiences smaller percent decreases in its net
income because it has made this choice (see parts 6, 7, and 8).

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Problem 9-4A (60 minutes)
1. Each employee’s FICA withholdings for Social Security
Dahlia

Trey

Kiesha

Chee

Maximum base .............
Earned through 8/18 ....
Would-be subject to tax ..

$94,200
93,400
$ 800

$94,200
31,700
$62,500

$94,200
6,850
$87,350

$94,200
1,250
$92,950

Earned this week ..........

$ 2,800

$ 1,000

$

$

Pay subject to tax.........
Tax rate .........................

800
6.20%

1,000
6.20%

550
6.20%

500
6.20%

Social Security tax .......

$ 49.60

$ 62.00

$ 34.10

$ 31.00

550

Total

500

$176.70

2. Each employee’s FICA withholdings for Medicare (no limits)
Dahlia

Trey

Kiesha

Chee

Earned this week ..........
Tax rate .........................

$ 2,800
1.45%

$ 1,000
1.45%

$ 550
1.45%

$ 500
1.45%

Medicare tax .................

$ 40.60

$ 14.50

$ 7.98

$ 7.25

Total

$ 70.33

3. Employer’s FICA taxes for Social Security

Amount from part 1 ......

Dahlia

Trey

$ 49.60

$ 62.00

Kiesha

Chee

$ 34.10

$ 31.00

Total
$176.70

4. Employer’s FICA taxes for Medicare

Amount from part 2 .......

Dahlia

Trey

$ 40.60

$ 14.50

Kiesha

Chee

$ 7.98

$ 7.25

Total
$ 70.33

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Problem 9-4A (Concluded)
5. Employer’s FUTA taxes
Maximum base ..............
Earned through 8/18 .....
Would-be subject to tax ...

Dahlia
$ 7,000
93,400
0

Trey
$ 7,000
31,700
0

Kiesha
$ 7,000
6,850
150

Chee
$ 7,000

1,250
5,750

Earned this week .........

$ 2,800

$ 1,000

$

$

Pay subject to tax........
Tax rate ........................
FUTA tax ......................

0
0.8%
0.00

0
0.8%
$ 0.00

150
0.8%
$ 1.20

500

0.8%
$ 4.00

Dahlia
$
0
2.15%
$ 0.00

Trey
$
0
2.15%
$ 0.00

Kiesha
$ 150
2.15%
$ 3.23

Chee
$ 500
2.15%
$10.75
10.75
10.60

$

550

Total

500

$

5.20

6. Employer’s SUTA taxes
Subject to tax (from 5)
Tax rate ........................
SUTA tax ......................

7. Each employee’s net (take-home) pay
Gross earnings .............
Less
FICA Social Sec. tax ....
FICA Medicare taxes ....
Withholding taxes ........
Health insurance ..........
Take-home pay .............

Total

$ 13.98

Dahlia
$2,800.00

Trey
Kiesha
$1,000.00 $550.00

Chee
$500.00

Total
$4,850.00

(49.60)
(40.60)
(284.00)
(17.00)
$2,408.80

(62.00) (34.10)
(31.00)
(14.50)
(7.98)
(7.25)
(145.00) (39.00)
(30.00)
(17.00) (17.00)
(17.00)
$ 761.50 $451.92 $414.75

(176.70)
(70.33)
(498.00)

(68.00)
$4,036.97

8. Employer’s total payroll-related expense for each employee
Dahlia
Gross earnings .............. $2,800.00
Plus
FICA Social Sec. tax ......
49.60
FICA Medicare taxes .....
40.60
FUTA tax .........................
0.00
SUTA tax .........................
0.00
Health insurance ............
17.00
Pension contrib. (8%) ....
224.00
Total payroll expense .... $3,131.20

Trey
$1,000.00

Kiesha
$550.00

Chee
$500.00

Total
$4,850.00

62.00
14.50
0.00
0.00
17.00
80.00
$1,173.50

34.10
7.98
1.20
3.23
17.00
44.00
$657.51

31.00
7.25
4.00
10.75
17.00
40.00
$610.00

176.70
70.33
5.20

13.98
68.00
388.00
$5,572.21

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Problem 9-5A (25 minutes)
Part 1
Jan. 8

Office Salaries Expense ..........................................
22,760.00
Sales Salaries Expense ...........................................
65,840.00
FICA—Social Sec. Taxes Payable* ..................
FICA—Medicare Taxes Payable** ....................
Employee Fed. Inc. Taxes Payable ..................
Employee Medical Insurance Payable .............
Employee Union Dues Payable ........................
Accrued Payroll Payable ...................................

5,493.20
1,284.70

12,860.00
1,340.00
840.00
66,782.10

To record payroll for period.
* $88,600 x 6.2%
** $88,600 x 1.45%

Part 2
Jan. 8

Payroll Taxes Expense ............................................
11,030.70
FICA—Social Sec. Taxes Payable ....................
FICA—Medicare Taxes Payable .......................
State Unemployment Taxes Payable*..............
Federal Unemployment Taxes Payable**...........

5,493.20
1,284.70
3,544.00
708.80

To record employer payroll taxes.
* $88,600 x .04 = $3,544.00
**$88,600 x .008 = $708.80

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Problem 9-6AA (50 minutes)
Mar. 15 FICASocial Security Taxes Payable ...................3,472
FICAMedicare Taxes Payable ............................. 812
Employee Fed. Income Taxes Payable. .................4,000
Cash ....................................................................

8,284

To record payment of FICA and federal
income taxes.

31 Office Salaries Expense ..........................................
11,200
Shop Wages Expense .............................................
16,800
FICASocial Sec. Taxes Payable ....................
FICAMedicare Taxes Payable .......................
Employee Fed. Income Taxes Payable ............
Accrued Payroll Payable ...................................

1,736
406
4,000
21,858

To record payroll for period.

31 Accrued Payroll Payable .........................................
21,858
Cash ....................................................................

21,858

To record payment of payroll.*
*The check numbers may be entered in the Payroll Register.

31 Payroll Taxes Expense* ...........................................2,814
FICASocial Sec. Taxes Payable ....................
FICAMedicare Taxes Payable .......................
State Unemployment Taxes Payable ...............
Federal Unemployment Taxes Payable ...........

1,736
406
560
112

To record employer payroll taxes.
*
Amount earned through 2/28 = 2 x $2,800 = $5,600
Subject to SUTA/FUTA in March = $7,000 - $5,600 = $1,400
SUTA = $1,400 x 10 employees x 4.0% = $560
FUTA = $1,400 x 10 employees x 0.8% = $112
FICASocial Security Taxes = $1,736 (same as employees)

FICAMedicare Taxes = $406 (same as employees)

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Problem 9-6AA (Concluded)
Apr. 15 FICASocial Security Taxes Payable ...................3,472
FICAMedicare Taxes Payable ............................. 812
Employee Fed. Income Taxes Payable ..................4,000
Cash ....................................................................

8,284

To record payment of FICA and
federal income taxes.

15 State Unemployment Taxes Payable .....................2,800
Cash ....................................................................

2,800

To record payment of SUTA taxes [$2,240 + $560].

30 Federal Unemployment Taxes Payable ................. 560
Cash ....................................................................

560

To record payment of FUTA taxes [$448 + $112].

30 No entry required upon mailing Form 941.

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PROBLEM SET B
Problem 9-1B (45 minutes)
Fox
Products
1.

July 15
120
Nov. 12

Dec. 6
45
Jan. 20

$12,000

10%
120/360
$ 400

$8,000
9%
45/360
$ 90

Interest due at maturity
Principal of the note.........................$4,600
Annual interest rate ......................... 15%
Fraction of year ................................60/360
Interest expense ...............................$ 115

3.

City
Bank

Maturity dates
Date of the note ................................
May 23
Term of the note (in days) ...............
60
Maturity date .....................................
July 22

2.

Spring
Bank

Accrued interest on City Bank note at the end of 2007
Total interest for note ................................................................ $ 90
Fraction of term in 2007............................................................. 25/45
Accrued interest expense ......................................................... $ 50

4.

Interest in 2008
Total interest for note ................................................................ $ 90
Fraction of term in 2008............................................................. 20/45
Interest expense in 2008............................................................ $ 40

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Problem 9-1B (Concluded)
5.
2007
Apr. 22

Merchandise Inventory ...........................................
Accounts PayableFox Products ...................

5,000
5,000

Purchased merchandise on credit.

May 23

Accounts PayableFox Products .........................
Cash ....................................................................
Notes PayableFox Products .........................

5,000
400
4,600

Paid $400 cash and gave a 60-day,
15% note to extend due date on account.

July 15

Cash .......................................................................... 12,000
Notes PayableSpring Bank ...........................

12,000

Borrowed cash with a 120-day, 10% note.

22

Interest Expense ......................................................
Notes PayableFox Products ...............................
Cash ....................................................................

115
4,600
4,715

Paid note with interest.

Nov. 12

Interest Expense ......................................................
400
Notes PayableSpring Bank ................................. 12,000
Cash ....................................................................

12,400

Paid note with interest.

Dec. 6

Cash ..........................................................................
Notes PayableCity Bank ................................

8,000
8,000

Borrowed cash with a 45-day, 9% note.

31

Interest Expense ......................................................
Interest Payable .................................................

50
50

Accrued interest on note payable.

2008
Jan. 20 Interest Expense ......................................................
Interest Payable .......................................................
Notes PayableCity Bank ......................................
Cash ....................................................................

40
50
8,000
8,090

Paid note with interest.

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