Financial accounting fundamentals 6th edition wild solutions manual download by tim.hossler727

Financial Accounting Fundamentals 6th Edition Wild Solutions Manual

Full download at link:

Test bank: https://testbankpack.com/p/test-bank-for-financialaccounting-fundamentals-6th-edition-by-wild-isbn-12601519809781260151985/

Solution Manual: https://testbankpack.com/p/solution-manualfor-financial-accounting-fundamentals-6th-edition-by-wild-isbn1260151980-9781260151985/

Chapter 9

Accounting for Current Liabilities QUESTIONS

1. 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.

2. 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.

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

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 2016 is $118,500.

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

7. 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.

8. 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.

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.

This

scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Financial & Managerial Accounting, 7th Edition 506

document may not be copied,

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 September 26, 2015, Apple reports accounts payable of $35,490 million.

15. At December 31, 2015, Google reports the following accrued expenses:

Accrued compensation and benefits

Accrued expenses and other current liabilities

Accrued revenue share

16. At December 31, 2015, Samsung reports eleven current liabilities: Trade and other payables; Short-term borrowings; Other payables; Advances received; Withholdings; Accrued expenses; Income tax payable; Current portion of long-term liabilities; Provisions; Other current liabilities; and Liabilities held-for-sale.

17. Samsung’s current liabilities include one income-tax-related liability titled: Income tax payable. This account reflects taxes that must be paid to the government in the short term.

Instructor note: Samsung has a current liability titled “Withholdings.” This may represent some tax withholdings (such as related to employee compensation), however, it is likely not income tax related. Samsung also has one noncurrent income-tax-related account on its balance sheet titled: Deferred income tax liabilities.

duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 507

by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not

copied, scanned,

QUICK STUDIES

Quick Study 9-1 (5 minutes)

Items 1, 4, 5 and 6 are current liabilities for this company.

Study 9-4 (15 minutes)

Quick Study 9-2 (10 minutes) (1) Sept. 30 Cash .............................................................. 6,300 Sales........................................................ 6,000 Sales Taxes Payable.............................. 300 Record cash sales and 5% sales tax. Sept. 30 Cost of Goods Sold...................................... 3,900 Merchandise Inventory.......................... 3,900 Record cost of Sept. 30 sales. (2) Oct. 15 Sales Taxes Payable.................................... 300 Cash ........................................................ 300 Record remittance of sales taxes to govt. Quick Study

Oct. 31 Cash .............................................................. 5,000,000 Unearned Ticket Revenue..................... 5,000,000 Record sales in advance of concerts. Nov. 5 Unearned Ticket Revenue........................... 1,250,000 Earned Ticket Revenue.......................... 1,250,000 Record concert revenues earned.

Computation of interest

Days from November 7 to December 31.............. 54 days Accrued interest (8% x $160,000 x 54/360).......... $1,920 2. 2017 Dec.31 Interest Expense ............................................ 1,920 Interest Payable....................................... 1,920 Record accrued interest (8% x $160,000 x 54/360).

9-3 (10 minutes)

Quick

payable at December 31, 2017:

Quick Study 9-4 (concluded)

Study 9-5 (15 minutes)

Study 9-6 (15 minutes)

[Note: Two months (January and February) of earnings have already been recorded for each of the 10 employees.]

3. 2018 Feb. 5 Interest Expense ............................................... 1,280 Interest Payable................................................. 1,920 Notes Payable.................................................... 160,000 Cash ............................................................. 163,200 Record payment of note plus interest (8% x $160,000 x 90/360 = 3,200).

Jan. 15 Sales Salaries Expense.................................... 35,000.00 FICA—Social Sec. Taxes Payable*............ 2,170.00 FICA—Medicare Taxes Payable**.............. 507.50 Employee Fed. Inc. Taxes Payable............ 6,500.00 Employee Medical Insurance Payable ...... 772.50 Employee Union Dues Payable ................. 120.00 Salaries Payable.......................................... 24,930.00 Record payroll for period. * $35,000 x 6.2% ** $35,000 x 1.45% Quick

Quick

Mar. 31 Payroll Taxes Expense........................................ 2,730.00 FICA Social Security Taxes Payable1 ........... 1,240.00 FICA Medicare Taxes Payable2 ................... 290.00 State Unemployment Taxes Payable3 ........... 1,080.00 Federal Unemployment Taxes Payable4 ....... 120.00 Record employer payroll taxes. 1(10 x $2,000) x 6.2% = $1,240.00 2(10 x $2,000) x 1.45% = $290.00 3(10 x $2,000 [check $2,000 under max: $7,000 – {$2,000 x 2}]) x 5.4% = $1,080.00 4(10 x $2,000 [check $2,000 under max: $7,000 – {$2,000 x 2}]) x 0.6% = $120.00

Quick Study 9-10 (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 9-11 (10 minutes)

$1,885,000 $145,000

Times interest earned = = 13.0 times

Interpretation: This company’s times interest earned ratio of 13.0 exceeds (is superior to) its competitors’ average ratio of 4.0. Moreover, a times interest earned of 13.0 suggests sufficient income to cover interest obligations.

Quick Study 9-12A (15 minutes)

Quick Study 9-13B (10 minutes)

Quick Study 9-14 (10 minutes)

a. The definitions and characteristics of current liabilities are broadly similar for both U.S. GAAP and IFRS. Although differences exist, the similarities vastly outweigh any differences.

b. Examples of financial liabilities under IFRS include interest-bearing loans and borrowings, and trade (account) and other payables.

is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 511

by McGraw-Hill Education This

any

Gross Pay............................................................................... $740.00 Social Security tax deduction (6.2%) ................................ $45.88 Medicare tax deduction (1.45%)......................................... 10.73 Federal income tax deduction (from Exhibit 9A.6) .......... 96.00 State income tax deduction (1.0%).................................... 7.40 Total deductions.................................................................. 160.01 Net Pay................................................................................... $579.99

Dec. 31 Income Taxes Expense....................................... 40,000 Income Taxes Payable.................................. 34,000 Deferred Income Tax Liability...................... 6,000 Record tax expense and deferred tax liability.

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Financial & Managerial Accounting, 7th Edition 512 EXERCISES Exercise 9-1 (10 minutes) 1. L 3. L 5. C 7. N 9. C 2. C 4. C 6. C 8. C 10. C Exercise 9-2 (10 minutes) [Note: All entries dated December 31, 2017] 1. Cash............................................................................... 10,400 Sales ........................................................................ 10,000 Sales Taxes Payable .............................................. 400 Record sales and sales taxes. Cost of Goods Sold...................................................... 5,000 Merchandise Inventory .......................................... 5,000 Record cost of sales. 2. Unearned Services Revenue ....................................... 50,000 Earned Services Revenue...................................... 50,000 Record revenue earned. Exercise 9-3 (30 minutes) 1. Maturity date = May 15 + 60 days = July 14, 2017 2a. May 15 Cash ..................................................................... 110,000 Notes Payable................................................ 110,000 Borrowed cash by issuing an interest-bearing note. 2b. July 14 Interest Expense*................................................ 2,200 Notes Payable...................................................... 110,000 Cash ............................................................... 112,200 Repaid note plus interest. * Principal...................... $110,000 x Interest rate.............. 12% x Fraction of year ...................................... ...................................... 60/360 Total interest............... $ 2,200

Exercise 9-4 (30 minutes)

instructor

Not authorized for sale or distribution in

This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 513

use.

any manner.

Maturity date = November 1 + 90 days = January 30, 2018.

Principal.................................................. $200,000 x Interest rate ......................................... 9% x Fraction of year (Nov. 1 – Dec. 31).... 60/360 Total interest in 2017............................. $ 3,000 3. Principal.................................................. $200,000 x Interest rate ......................................... 9% x Fraction of year (Jan. 1 – Jan. 30)..... 30/360 Total interest in 2018............................. $ 1,500 4a. 2017 Nov. 1 Cash ..................................................................... 200,000 Notes Payable................................................ 200,000 Borrowed cash by issuing an interest-bearing note. 4b. 2017 Dec. 31 Interest Expense ................................................. 3,000 Interest Payable............................................. 3,000 Accrued interest on note payable. 4c. 2018 Jan. 30 Interest Expense ................................................. 1,500 Interest Payable................................................... 3,000 Notes Payable...................................................... 200,000 Cash ............................................................... 204,500 Repaid note plus interest.

minutes) Subject toTax Rate Tax Explanation a. FICA--Social Security.... $ 800 6.20% $ 49.60 Full amount is subject to tax. FICA—Medicare............. 800 1.45 11.60 Full amount is subject to tax. FUTA................................. 600 0.60 3.60 $200 is over the maximum. SUTA................................. 600 2.90 17.40 $200 is over the maximum. b. FICA--Social Security.... $2,100 6.20% $130.20 Full amount is subject to tax. FICA—Medicare............. 2,100 1.45 30.45 Full amount is subject to tax. FUTA................................. 0 0.60 0.00 Full amount is over maximum. SUTA................................. 0 2.90 0.00 Full amount is over maximum. c. FICA--Social Security.... $6,300 6.20% $390.60 $1,700 is over the maximum. FICA—Medicare............. 8,000 1.45 116.00 Full amount is subject to tax. FUTA................................. 0 0.60 0.00 Full amount is over maximum. SUTA................................. 0 2.90 0.00 Full amount is over maximum. Exercise 9-6 (10 minutes) Sept. 30 Salaries Expense.................................................. 800.00 FICA—Social Security Taxes Payable ......... 49.60 FICA—Medicare Taxes Payable.................... 11.60 Employee Federal Income Taxes Payable...... 80.00 Salaries Payable............................................. 658.80 Record payroll for pay period ended September 30. Exercise 9-7 (10 minutes) Sept. 30 Payroll Taxes Expense....................................... 82.20 FICA—Social Security Taxes Payable ........ 49.60 FICA—Medicare Taxes Payable................... 11.60 Federal Unemployment Taxes Payable ...... 3.60 State Unemployment Taxes Payable .......... 17.40 Record employer payroll taxes.

Exercise 9-5 (20

Exercise 9-8 (30 minutes)

1. July 31 Sales Salaries Expense.................................... 200,000 Office Salaries Expense................................... 160,000 FICA—Social Sec. Taxes Payable............. 22,320 FICA—Medicare Taxes Payable ................ 5,220 Employee Fed. Inc. Taxes Payable ........... 90,000 Employee State Inc. Taxes Payable.......... 20,000 Employee Medical Insurance Payable* .... 2,800 Employee Life Insurance Payable**.......... 1,600 Employee Union Dues Payable................. 1,000 Salaries Payable ......................................... 217,060 Record payroll for period. * $7,000 x 40% ** $4,000 x 40% 2. July 31 Salaries Payable ............................................... 217,060 Cash............................................................. 217,060 Record payment of payroll.* *Check numbers may be entered in the Payroll Register. 3. July 31 Payroll Taxes Expense..................................... 30,540 FICA Social Sec. Taxes Payable............. 22,320 FICA Medicare Taxes Payable ................ 5,220 State Unemployment Taxes Payable........ 2,700 Federal Unemployment Taxes Payable.... 300 Record employer payroll taxes. SUTA = $50,000 x 5.4% = $2,700 FUTA = $50,000 x 0.6% = $300 FICA Social Sec. & Medicare = Same as employees July 31 Employee Benefits Expense............................ 6,600 Employee Medical Insurance Payable* .... 4,200 Employee Life Insurance Payable**.......... 2,400 Record costs of employee benefits. * $7,000 x 60% ** $4,000 x 60% 4. July 31 FICA Social Security Taxes Payable............ 44,640 FICA Medicare Taxes Payable ...................... 10,440 Employee Fed. Income Taxes Payable........... 90,000 Employee State Income Taxes Payable. ........ 20,000 Employee Medical Insurance Payable............ 7,000 Employee Life Insurance Payable................... 4,000 Employee Union Dues Payable....................... 1,000 State Unemployment Taxes Payable.............. 2,700 Federal Unemployment Taxes Payable.......... 300 Cash............................................................. 180,080 Record payment of FICA, income taxes, SUTA, FUTA, union dues, and insurance premiums.

Exercise 9-9 (30 minutes)

a. Employee Cumulative Pay Pay Subject to FICA Social Security Pay Subject to FICA Medicare Pay Subject to FUTA Taxes Pay Subject to SUTA Taxes Ken S......... $ 6,000 $ 6,000 $ 6,000 $ 6,000 $ 6,000 Tim V......... 60,200 60,200 60,200 7,000 7,000 Steve S...... 87,000 87,000 87,000 7,000 7,000 Michael M.. 143,500 118,500 143,500 7,000 7,000 Erin C ........ 106,900 106,900 106,900 7,000 7,000 Kyle B........ 118,500 118,500 118,500 7,000 7,000 Lori K......... 121,000 118,500 121,000 7,000 7,000 Kitty O....... 36,900 36,900 36,900 7,000 7,000 John W...... 4,000 4,000 4,000 4,000 4,000 Totals ........ $684,000 $656,500 $684,000 $59,000 $59,000 b. FICA Social Security taxes $81,406.00 = $656,500 x 6.2% x 2 (for employer and employee) FICA Medicare taxes $19,836.00 = $684,000 x 1.45% x 2 (for employer and employee) FUTA taxes $ 354.00 = $59,000 x 0.6% SUTA taxes $ 3,186.00 = $59,000 x 5.4%

Exercise 9-10 (25 minutes)

1. Warranty Expense = 4% of dollar sales = 4% x $6,000 = $240

2. The December 31, 2017, balance of the liability equals the expense because no repairs are provided in 2017. Therefore, the ending balance of the Estimated Warranty Liability account is $240.

3. The company should report no additional warranty expense in 2018 for this copier.

4. The December 31, 2018, balance of the Estimated Warranty Liability account equals the 2018 beginning balance minus the costs incurred in 2018 to repair the copier:

for authorized

use. Not authorized for sale or distribution in

This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 517

by McGraw-Hill Education This is proprietary material solely

instructor

any manner.

Ending

$240 Less parts cost................................. (209) Ending 2018 balance........................ $ 31 5. Journal entries 2017 (a) Aug. 16 Cash ...................................................................... 6,000 Sales................................................................ 6,000 Record cash sale of copier. Aug. 16 Cost of Goods Sold.............................................. 4,800 Merchandise Inventory.................................. 4,800 Record cost of August 16 sale. (b) Dec. 31 Warranty Expense................................................ 240 Estimated Warranty Liability......................... 240 Record warranty expense for copier sold in 2017. 2018 (c) Nov. 22 Estimated Warranty Liability............................... 209 Repair Parts Inventory................................... 209 Record cost of warranty repairs.

2017 balance........................

Exercise 9-11 (15 minutes)

Exercise 9-12 (10 minutes)

[Note: All entries dated December 31, 2017.]

Exercise 9-13 (10 minutes)

[Note: All entries dated December 31, 2017.]

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

2. 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.

2017 Dec. 31 Employee Bonus Expense ................................ 14,563 Bonus Payable.......................................... 14,563 Record expected bonus costs. 2. 2018 Jan. 19 Bonus Payable.................................................... 14,563 Cash........................................................... 14,563 Record payment of bonus.

1. Vacation Benefits Expense ...................................... 3,200 Vacation Benefits Payable.................................. 3,200 Record vacation benefits expense [20 employees x 1 day x $160]. 2. Warranty Expense..................................................... 18,000 Estimated Warranty Liability.............................. 18,000 Record warranty expense [12,000 units x 10% x $15].

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.

This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 519

(a) (b) (c) (d) (e) (f) Numerator Income before interest & taxes $194,000 $176,000 $182,000 $379,000 $103,000 $ 5,000 Denominator Interest expense . $ 44,000 $ 16,000 $ 12,000 $ 14,000 $ 14,000 $10,000 Ratio.................. 4.41 11.00 15.17 27.07 7.36 0.50

Exercise

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. 2017 (a) Dec. 31 Income Tax Expense ........................................... 3,610 Income Taxes Payable .................................. 3,610 Adjust tax expense and liability. 2018 (b) Jan. 20 Income Taxes Payable ........................................ 28,300 Cash................................................................ 28,300 Make the final quarterly payment of income taxes for 2017. Exercise 9-16A (15 minutes) Regular pay (40 hours @ $14)....................................... $560.00 Overtime premium pay (8 hours @ [$14 x 150%])....... 168.00 Gross pay...................................................................... 728.00 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........................................................... 131.70 Net pay ............................................................................ $596.30

by McGraw-Hill Education

Exercise 9-14 (15 minutes)

9-15B (25 minutes)

Exercise 9-17 (30 minutes)

Financial & Managerial Accounting, 7th Edition 520

(a) Employee Cumulative Pay (Excludes Current Period) Current Period Gross Pay FIT Withholding FUTA FICA S.S. Employee FICA Medicare Employee Employee— Benefits Plan Withholding Employee Net Pay (Current Period) Pay Type Pay Hours Gross Pay SIT Withholding SUTA FICA S.S. Employer FICA Medicare Employer Employer— Benefits Plan Expense Kathleen 116,700.00 Salary --- 7,000.00 2,000.00 0.00 111.60 101.50 350.00 4,136.90 300.00 0.00 111.60 101.50 700.00 Anthony 6,800.00 Salary --- 500.00 80.00 1.20 31.00 7.25 25.00 336.75 20.00 10.80 31.00 7.25 50.00 Nichole 15,000.00 Regular 80 800.00 110.00 0.00 57.04 13.34 46.00 668.62 Overtime 8 120.00 920.00 25.00 0.00 57.04 13.34 92.00 Zoey 6,500.00 Regular 80 800.00 100.00 3.00 53.32 12.47 43.00 629.21 Overtime 4 60.00 860.00 22.00 27.00 53.32 12.47 86.00 Gracie 5,000.00 Regular 74 740.00 90.00 4.44 45.88 10.73 37.00 535.39 Overtime 0 0.00 740.00 21.00 39.96 45.88 10.73 74.00 Totals 150,000.00 10,020.00 2,380.00 8.64 298.84 145.29 501.00 6,306.87 388.00 77.76 298.84 145.29 1,002.00

Exercise 9-17 (concluded)

(b) Aug 31 Salaries (or Wages) Expense ......................... 10,020.00 FICA—Social Sec. Taxes Payable............ 298.84 FICA—Medicare Taxes Payable ............... 145.29 Employee Fed. Inc. Taxes Payable .......... 2,380.00 Employee State Inc. Taxes Payable......... 388.00 Employee Benefits Plan Payable ............. 501.00 Salaries Payable ........................................ 6,306.87 Record payroll for period. (c) Aug 31 Salaries (or Wages) Payable........................... 6,306.87 Cash............................................................ 6,306.87 Record payment of payroll. (d) Aug 31 Payroll Taxes Expense.................................... 530.53 FICA Social Sec. Taxes Payable............ 298.84 FICA Medicare Taxes Payable ............... 145.29 Federal Unemployment Taxes Payable... 8.64 State Unemployment Taxes Payable....... 77.76 Record employer payroll taxes. Aug 31 Employee Benefits Expense........................... 1,002.00 Employee Benefits Plan Payable ............. 1,002.00 Record costs of employee benefits. (e) Aug 31 FICA Social Security Taxes Payable........... 597.68 FICA Medicare Taxes Payable ..................... 290.58 Employee Fed. Income Taxes Payable.......... 2,380.00 Employee State Income Taxes Payable. ....... 388.00 Employee Benefits Plan Payable ................... 1,503.00 Federal Unemployment Taxes Payable......... 8.64 State Unemployment Taxes Payable............. 77.76 Cash............................................................ 5,245.66 Record payment of FICA, income taxes, SUTA, FUTA, and benefit plan contributions.

PROBLEM SET A

McGraw-Hill

Problem 9-1A (45 minutes) Locust NBR Bank Fargo Bank 1. Maturity dates Date of the note ..................... May 19 July 8 Nov. 28 Term of the note (in days) .... 90 120 60 Maturity date.......................... Aug. 17 Nov. 5 Jan. 27 2. Interest due at maturity Principal of the note.............. $35,000 $80,000 $42,000 Annual interest rate............... 10% 9% 8% Fraction of year ..................... 90/360 120/360 60/360 Interest expense.................... $ 875 $ 2,400 $ 560

Accrued interest on Fargo note at the end of 2016 Total interest for note ................................................... $ 560 Fraction of term in 2016................................................ 33/60 Accrued interest expense............................................. ......................................................................................... $ 308

Interest on Fargo note in 2017 Total interest for note ................................................... $ 560 Fraction of term in 2017................................................ 27/60 Interest expense in 2017............................................... $ 252

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Financial & Managerial Accounting, 7th Edition 524 Problem 9-1A (Concluded) 5. 2016 Apr. 20 Merchandise Inventory.......................................... 40,250 Accounts Payable—Locust............................. 40,250 Purchased merchandise on credit. May 19 Accounts Payable Locust................................... 40,250 Cash .................................................................. 5,250 Notes Payable—Locust................................... 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—NBR....................................... 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—NBR............................................. 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 .................................................... 308 Interest Payable................................................ 308 Accrued interest on note payable. 2017 Jan. 27 Interest Expense .................................................... 252 Notes Payable Fargo Bank................................. 42,000 Interest Payable...................................................... 308 Cash .................................................................. 42,560 Paid note with interest.

Problem 9-2A (25 minutes)

Part 1 Jan. 8 Office Salaries Expense ................................ 22,760.00 Sales Salaries Expense................................. 65,840.00 FICA—Social Sec. Taxes Payable*......... 5,493.20 FICA—Medicare Taxes Payable**........... 1,284.70 Employee Fed. Inc. Taxes Payable......... 12,860.00 Employee Medical Insurance Payable ... 1,340.00 Employee Union Dues Payable .............. 840.00 Salaries Payable....................................... 66,782.10 Record payroll for period. * $88,600 x 6.2% **$88,600 x 1.45% Part 2 Jan. 8 Payroll Taxes Expense.................................. 10,853.50 FICA—Social Sec. Taxes Payable .......... 5,493.20 FICA Medicare Taxes Payable.............. 1,284.70 State Unemployment Taxes Payable*.... 3,544.00 Federal Unemployment Taxes Payable** . 531.60 Record employer payroll taxes. * $88,600 x .04 = $3,544.00 **$88,600 x .006 = $531.60

Problem

9-3A (60 minutes)

Dali Trey Kiesha Chee Total Maximum base............. $118,500 $118,500 $118,500 $118,500 Earned through 8/18.... 117,400 117,600 6,900 1,250 Yet under maximum .... $ 1,100 $ 900 $111,600 $117,250 Earned this week ......... $ 2,000 $ 900 $ 450 $ 400 Subject to tax............... 1,100 900 450 400 Tax rate......................... 6.20% 6.20% 6.20% 6.20% Social Security tax....... $ 68.20 $ 55.80 $ 27.90 $ 24.80 $176.70

1. Each employee’s FICA withholdings for Social Security

Dali Trey Kiesha Chee Total Earned this week ........ $ 2,000 $ 900 $ 450 $ 400 Tax rate........................ 1.45% 1.45% 1.45% 1.45% Medicare tax................ $ 29.00 $ 13.05 $ 6.53 $ 5.80 $ 54.38

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

Dali Trey Kiesha Chee Total Amount from part 1 .... $ 68.20 $ 55.80 $ 27.90 $ 24.80 $176.70

3. Employer’s FICA taxes for Social Security

Dali Trey Kiesha Chee Total Amount from part 2 .... $ 29.00 $ 13.05 $ 6.53 $ 5.80 $ 54.38

4. Employer’s FICA taxes for Medicare

Problem 9-3A (Concluded)

Employer’s FUTA

Dali Trey Kiesha Chee Total Maximum base.............. $ 7,000 $ 7,000 $ 7,000 $ 7,000 Earned through 8/18..... 117,400 117,600 6,900 1,250 Yet under maximum ..... 0 0 100 5,750 Earned this week .......... $ 2,000 $ 900 $ 450 $ 400 Subject to tax................ 0 0 100 400 Tax rate.......................... 0.6% 0.6% 0.6% 0.6% FUTA tax........................ $ 0.00 $ 0.00 $ 0.60 $ 2.40 $ 3.00

Employer’s SUTA taxes Dali Trey Kiesha Chee Total Subject to tax (from 5).. $ 0 $ 0 $ 100 $ 400 Tax rate.......................... 2.15% 2.15% 2.15% 2.15% SUTA tax........................ $ 0.00 $ 0.00 $ 2.15 $ 8.60 10.60 $ 10.75

taxes

Dali Trey Kiesha Chee Total Gross earnings .............. $2,000.00 $ 900.00 $450.00 $400.00 $3,750.00 Less FICA Social Sec. tax...... (68.20) (55.80) (27.90) (24.80) (176.70) FICA Medicare taxes..... (29.00) (13.05) (6.53) (5.80) (54.38) Withholding taxes.......... (284.00) (145.00) (39.00) (30.00) (498.00) Health insurance............ (20.00) (20.00) (20.00) (20.00) (80.00) Take-home pay ............. $1,598.80 $ 666.15 $356.57 $319.40 $2,940.92

7. Each employee’s net (take-home) pay

Dali Trey Kiesha Chee Total Gross earnings............ $2,000.00 $ 900.00 $450.00 $400.00 $3,750.00 Plus FICA Social Sec. tax ... 68.20 55.80 27.90 24.80 176.70 FICA Medicare taxes... 29.00 13.05 6.53 5.80 54.38 FUTA tax....................... 0.00 0.00 0.60 2.40 3.00 SUTA tax....................... 0.00 0.00 2.15 8.60 10.75 Health insurance......... 40.00 40.00 40.00 40.00 160.00 Pension contrib. (8%). 160.00 72.00 36.00 32.00 300.00 Total payroll expense. $2,297.20 $1,080.85 $563.18 $513.60 $4,454.83

8. Employer’s total payroll-related expense for each employee

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Financial & Managerial Accounting, 7th Edition 528 Problem 9-4A (40 minutes) 1. 2016 Nov. 11 Cash ........................................................................ 7,875 Sales.................................................................. 7,875 Sold razors to customers. 11 Cost of Goods Sold................................................ 2,100 Merchandise Inventory.................................... 2,100 Record cost of November 11 sale (105 x $20). 30 Warranty Expense.................................................. 630 Estimated Warranty Liability........................... 630 Record razor warranty expense and liability at 8% of selling price. Dec. 9 Estimated Warranty Liability................................. 300 Merchandise Inventory.................................... 300 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................................................ 4,400 Merchandise Inventory.................................... 4,400 Record cost of December 16 sale (220 x $20). 29 Estimated Warranty Liability................................. 600 Merchandise Inventory.................................... 600 Record cost of razor warranty replacements (30 x $20). 31 Warranty Expense.................................................. 1,320 Estimated Warranty Liability........................... 1,320 Record razor warranty expense and liability at 8% of selling price.

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 529 Problem 9-4A (Concluded) 2017 Jan. 5 Cash ........................................................................ 11,250 Sales.................................................................. 11,250 Sold razors to customers. 5 Cost of Goods Sold................................................ 3,000 Merchandise Inventory.................................... 3,000 Record cost of January 5 sale (150 x $20). 17 Estimated Warranty Liability................................. 1,000 Merchandise Inventory.................................... 1,000 Record cost of razor warranty replacements (50 x $20). 31 Warranty Expense.................................................. 900 Estimated Warranty Liability........................... 900 Record razor warranty expense and liability at 8% of selling price. 2. Warranty expense for November 2016 and December 2016 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 2017 Sales in January ......................... $11,250 Warranty percent........................ 8% Warranty expense....................... $ 900 4. Balance of the estimated liability as of December 31, 2016 Warranty expense for November ................................. $ 630 credit Warranty expense for December ................................. 1,320 credit Cost of replacing items in December (45 x $20)......... (900) debit Estimated Warranty Liability balance.......................... $1,050 1,050 credit 5. Balance of the estimated liability as of January 31, 2017 Beginning balance......................................................... $1,050 credit Warranty expense for January..................................... 900 credit Cost of replacing items in January (50 x $20) ............ (1,000) debit Estimated Warranty Liability balance.......................... $ 950 credit

Problem 9-5A (60 minutes)

for

use. Not authorized for sale or distribution in

This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Financial & Managerial Accounting, 7th Edition 530

authorized instructor

any manner.

1. Miller Company

= = 3.33

2. Weaver Company

= = 1.54

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 $ 260,000 Net income increases by*...... 43% 86%

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

3. Sales increase by 30% (multiply prior sales by 1.3)

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....... 71% 143%

4. Sales increase by 50% (multiply prior sales by 1.5)

Miller Co.

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% Income before interest & taxes Interest expense Income before interest & taxes Interest expense $200,000 $60,000 $400,000 $260,000

5. Sales increase by 80% (multiply prior sales by 1.8)

Weaver

Problem 9-5A (Continued)

6. Sales decrease by 10% (multiply prior sales by 0.9)

7. Sales decrease by 20% (multiply prior sales by 0.8)

8. Sales decrease by 40% (multiply prior sales by 0.6)

9. 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).

by McGraw-Hill Education

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...... -14% -29%

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...... -29% -57%

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...... -57% -114%

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 Record payment of FICA & federal income taxes. 31 Office Salaries Expense ................................. 11,200 Shop Salaries Expense................................... 16,800 FICA Social Sec. Taxes Payable ........... 1,736 FICA Medicare Taxes Payable............... 406 Employee Fed. Income Taxes Payable ... 4,000 Salaries Payable........................................ 21,858 Record payroll for the period. 31 Salaries Payable.............................................. 21,858 Cash ........................................................... 21,858 Record payment of payroll.* *Check numbers are likely entered in the Payroll Register. 31 Payroll Taxes Expense* .................................. 2,786 FICA Social Sec. Taxes Payable ........... 1,736 FICA Medicare Taxes Payable............... 406 State Unemployment Taxes Payable ...... 560 Federal Unemployment Taxes Payable .. 84 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 0.6% = $84 FICA Social Security Taxes = $1,736 (same as employees) FICA Medicare Taxes = $406 (same as employees)

PROBLEM SET B

Problem 9-1B (45 minutes)

Fox-Pro Spring Bank City Bank 1. Maturity dates Date of the note ...................... May 23 July 15 Dec. 6 Term of the note (in days)...... 60 120 45 Maturity date ........................... July 22 Nov. 12 Jan. 20

Interest due at maturity Principal of the note............... $4,600 $12,000 $8,000 Annual interest rate................ 15% 10% 9% Fraction of year....................... 60/360 120/360 45/360 Interest expense ..................... $ 115 $ 400 $ 90

Accrued interest on City Bank note at the end of 2016 Total interest for note............................................................ $ 90 Fraction of term in 2016........................................................ 25/45 Accrued interest expense ................................................................................................. ................................................................................................. $ 50

Interest in 2017 Total interest for note............................................................ $ 90 Fraction of term in 2017........................................................ 20/45 Interest expense in 2017....................................................... $ 40

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 535 Problem 9-1B (Concluded) 5. 2016 Apr. 22 Merchandise Inventory.......................................... 5,000 Accounts Payable Fox-Pro........................... 5,000 Purchased merchandise on credit. May 23 Accounts Payable Fox-Pro................................. 5,000 Cash .................................................................. 400 Notes Payable Fox-Pro ................................. 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 .................................................... 115 Notes Payable Fox-Pro ....................................... 4,600 Cash .................................................................. 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 ........................................................................ 8,000 Notes Payable City Bank .............................. 8,000 Borrowed cash with a 45-day, 9% note. 31 Interest Expense .................................................... 50 Interest Payable................................................ 50 Accrued interest on note payable. 2017 Jan. 20 Interest Expense .................................................... 40 Interest Payable...................................................... 50 Notes Payable City Bank .................................... 8,000 Cash .................................................................. 8,090 Paid note with interest.

Problem 9-2B (25 minutes)

by McGraw-Hill

Part 1 Jan. 8 Sales Salaries Expense.................................. 34,745.00 Office Salaries Expense................................. 21,225.00 Delivery Salaries Expense............................. 1,030.00 FICA Social Security Taxes Payable*... 3,534.00 FICA—Medicare Taxes Payable** ........... 826.50 Employee Fed. Income Taxes Payable... 8,625.00 Employee Med. Insurance Payable......... 1,160.00 Employee Union Dues Payable............... 138.00 Salaries Payable ....................................... 42,716.50 Record payroll for period. * $57,000 x 6.2% = $3,534.00 ** $57,000 x 1.45% = $826.50 Part 2 Jan. 8 Payroll Taxes Expense................................... 6,640.50 FICA—Social Security Taxes Payable.... 3,534.00 FICA Medicare Taxes Payable.............. 826.50 State Unemployment Taxes Payable*..... 1,938.00 Federal Unemployment Taxes Payable** .. 342.00 Record employer payroll taxes. * $57,000 x .034 = $1,938 **$57,000 x .006 = $342

Problem 9-3B (60 minutes)

Ahmed Carlos Jun Marie Total Maximum base............. $118,500 $ 118,500 $118,500 $ 118,500 Earned through 9/23.... 116,900 116,985 6,650 23,700 Yet under maximum .... $ 1,600 $ 1,515 $111,850 $ 94,800 Earned this week ......... $ 2,500 $ 1,515 $ 475 $ 1,000 Subject to tax............... $ 1,600 $ 1,515 $ 475 $ 1,000 Tax rate......................... 6.20% 6.20% 6.20% 6.20% Social Security tax....... $ 99.20 $ 93.93 $ 29.45 $ 62.00 $284.58

1. Each employee’s FICA withholdings for Social Security

Ahmed Carlos Jun Marie Total Earned this week ......... $ 2,500 $ 1,515 $ 475 $ 1,000 Tax rate......................... 1.45% 1.45% 1.45% 1.45% Medicare tax................. $ 36.25 $ 21.97 $ 6.89 $ 14.50 $ 79.61

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

Ahmed Carlos Jun Marie Total Amount from part 1 ..... $ 99.20 $ 93.93 $ 29.45 $ 62.00 $284.58

3. Employer’s FICA taxes for Social Security

Ahmed Carlos Jun Marie Total Amount from part 2 ..... $ 36.25 $ 21.97 $ 6.89 $ 14.50 $ 79.61

4. Employer’s FICA taxes for Medicare

Employer’s FUTA taxes Ahmed Carlos Jun Marie Total Maximum base .......... $ 7,000 $ 7,000 $ 7,000 $ 7,000 Earned through 9/23 . 116,900 116,985 6,650 23,700 Yet under maximum... $ 0 $ 0 $ 350 $ 0 Earned this week....... $ 2,500 $ 1,515 $ 475 $ 1,000 Subject to tax............. $ 0 $ 0 $ 350 $ 0 Tax rate ...................... 0.6% 0.6% 0.6% 0.6% FUTA tax ................. $ 0.00 $ 0.00 $ 2.10 $ 0.00 $ 2.10 6. Employer’s SUTA taxes Ahmed Carlos Jun Marie Total Subject to tax (from 5) $ 0 $ 0 $ 350 $ 0 Tax rate...................... 1.75% 1.75% 1.75% 1.75% SUTA tax................. $ 0.00 $ 0.00 $ 6.13 $ 0.00 $ 6.13

Ahmed Carlos Jun Marie Total Gross earnings........... $2,500.00 $1,515.00 $475.00 $1,000.00 $5,490.00 Less FICA Social Sec. tax... (99.20) (93.93) (29.45) (62.00) (284.58) FICA Medicare taxes.. (36.25) (21.97) (6.89) (14.50) (79.61) Withholding taxes...... (198.00) (182.00) (32.00) (68.00) (480.00) Health insurance ........ (20.00) (20.00) (20.00) (20.00) (80.00) Take-home pay ........ $2,146.55 $1,197.10 $386.66 $835.50 $4,565.81

7. Each employee’s net (take-home pay)

Ahmed Carlos Jun Marie Total Gross earnings........... $2,500.00 $1,515.00 $475.00 $1,000.00 $5,490.00 Plus FICA Social Sec. tax... 99.20 93.93 29.45 62.00 284.58 FICA Medicare taxes.. 36.25 21.97 6.89 14.50 79.61 FUTA tax...................... 0.00 0.00 2.10 0.00 2.10 SUTA tax...................... 0.00 0.00 6.13 0.00 6.13 Health insurance ........ 30.00 30.00 30.00 30.00 120.00 Pension contrib. (5%) 125.00 75.75 23.75 50.00 274.50 Total payroll.............. $2,790.45 $1,736.65 2.49 $573.32 $1,156.50 $6,256.92

8. Employer’s total payroll-related expense for each employee

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 539 Problem 9-4B (40 minutes) 1. 2016 Nov. 16 Cash ........................................................................ 2,500 Sales.................................................................. 2,500 Sold coffee grinders to customers. 16 Cost of Goods Sold................................................ 1,200 Merchandise Inventory.................................... 1,200 Record cost of November 16 sale (50 x $24). 30 Warranty Expense.................................................. 250 Estimated Warranty Liability........................... 250 Record coffee grinder warranty expense and liability at 10% of selling price. Dec. 12 Estimated Warranty Liability................................. 144 Merchandise Inventory.................................... 144 Record cost of coffee grinder warranty replacements (6 x $24). 18 Cash ........................................................................ 10,000 Sales.................................................................. 10,000 Sold coffee grinders to customers. 18 Cost of Goods Sold................................................ 4,800 Merchandise Inventory.................................... 4,800 Record cost of December 18 sale (200 x $24). 28 Estimated Warranty Liability................................. 408 Merchandise Inventory.................................... 408 Record cost of coffee grinder warranty replacements (17 x $24). 31 Warranty Expense.................................................. 1,000 Estimated Warranty Liability........................... 1,000 Record coffee grinder warranty expense and liability at 10% of selling price.

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Financial & Managerial Accounting, 7th Edition 540 Problem 9-4B (Concluded) 2017 Jan. 7 Cash ........................................................................ 2,000 Sales.................................................................. 2,000 Sold coffee grinders to customers. 7 Cost of Goods Sold................................................ 960 Merchandise Inventory.................................... 960 Record cost of January 7 sale (40 x $24). 21 Estimated Warranty Liability................................. 864 Merchandise Inventory.................................... 864 Record cost of coffee grinder warranty replacements (36 x $24). 31 Warranty Expense.................................................. 200 Estimated Warranty Liability........................... 200 Record coffee grinder warranty expense and liability at 10% of selling price. 2. Warranty expense for November 2016 and December 2016 Sales Percent Warranty Expense November..................... $ 2,500 10% $ 250 December..................... 10,000 10 1,000 Total.............................. $12,500 $1,250 3. Warranty expense for January 2017 Sales in January......................... $2,000 Warranty percent........................ 10% Warranty expense ...................... $ 200 4. Balance of the estimated liability as of December 31, 2016 Warranty expense for November................................ $ 250 credit Warranty expense for December................................ 1,000 credit Cost of replacing items in December (23 x $24) ....... (552) debit Estimated Warranty Liability balance ........................ $ 698 credit 5. Balance of the estimated liability as of January 31, 2017 Beginning balance ....................................................... $ 698 credit Warranty expense for January.................................... 200 credit Cost of replacing items in January (36 x $24)........... (864) debit Estimated Warranty Liability balance ........................ $ 34 credit

Problem 9-5B (60 minutes)

1. Ellis Company = = 1.33

2. Seidel Company = = 2.0

3. Sales increase by 10% (multiply prior sales by 1.10)

4. Sales increase by 40% (multiply prior sales by 1.40)

5. Sales increase by 90% (multiply prior sales by 1.90)

for

instructor use. Not authorized for sale or distribution in

This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 541

authorized

any manner.

Ellis Co. Seidel Co. Sales........................................ $264,000 $264,000 Variable expenses.................. 132,000 198,000 Income before interest........... 132,000 66,000 Interest expense (fixed) ......... 90,000 30,000 Net income.............................. $ 42,000 $ 36,000 Net income increases by....... 40% 20%

Ellis Co.

Co. Sales........................................ $336,000 $336,000 Variable expenses.................. 168,000 252,000 Income before interest........... 168,000 84,000 Interest expense (fixed) ......... 90,000 30,000 Net income.............................. $ 78,000 $ 54,000 Net income increases by....... 160% 80%

Seidel

Ellis Co. Seidel Co. Sales........................................ $456,000 $456,000 Variable expenses.................. 228,000 342,000 Income before interest........... 228,000 114,000 Interest expense (fixed) ......... 90,000 30,000 Net income.............................. $138,000 $ 84,000 Net income increases by....... 360% 180% Income before interest & taxes Interest expense Income before interest & taxes Interest expense $120,000 $90,000 $60,000 $30,000

Problem 9-5B (Concluded)

6. Sales decrease by 20% (multiply prior sales by 0.80)

7. Sales decrease by 50% (multiply prior sales by 0.50)

8. Sales decrease by 80% (multiply prior sales by 0.20)

9. The higher fixed cost strategy (having more fixed interest expense) of Ellis 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 Ellis 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. Ellis Co. enjoys substantially greater 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. Seidel Co. experiences much smaller decreases in its net income because it has made this choice (see parts 6, 7, and 8).

Ellis Co. Seidel Co. Sales........................................ $192,000 $192,000 Variable expenses.................. 96,000 144,000 Income before interest........... 96,000 48,000 Interest expense (fixed) ......... 90,000 30,000 Net income.............................. $ 6,000 $ 18,000 Net income decreases by...... -80% -40%

Ellis Co. Seidel Co. Sales........................................ $120,000 $120,000 Variable expenses.................. 60,000 90,000 Income before interest........... 60,000 30,000 Interest expense (fixed) ......... 90,000 30,000 Net income.............................. $(30,000) $ 0 Net income decreases by...... -200% -100%

Ellis Co. Seidel Co. Sales........................................ $ 48,000 $ 48,000 Variable expenses.................. 24,000 36,000 Income before interest........... 24,000 12,000 Interest expense (fixed) ......... 90,000 30,000 Net income.............................. $(66,000) $(18,000) Net income decreases by...... -320% -160%

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 543 Problem 9-6BA (50 minutes) June 15 FICA Social Security Taxes Payable ............ 992 FICA—Medicare Taxes Payable....................... 232 Employee Fed. Income Taxes Payable ........... 1,050 Cash ............................................................. 2,274 Record payment of FICA & federal income taxes. 30 Office Salaries Expense ................................... 3,800 Shop Salaries Expense..................................... 4,200 FICA—Social Security Taxes Payable ...... 496 FICA—Medicare Taxes Payable................. 116 Employee Fed. Income Taxes Payable ..... 1,050 Salaries Payable.......................................... 6,338 Record payroll for the period. 30 Salaries Payable................................................ 6,338 Cash ............................................................. 6,338 Record payment of payroll.* *Check numbers are likely entered in the Payroll Register. 30 Payroll Taxes Expense* .................................... 612 FICA Social Security Taxes Payable ...... 496 FICA Medicare Taxes Payable................. 116 Record employer payroll taxes. *Amount earned through 5/31 = 5 x $1,600 = $8,000 Subject to SUTA/FUTA in June = $0 SUTA = $0 FUTA = $0 FICA Social Security Taxes = $496 (same as employees) FICA Medicare Taxes = $116 (same as employees)

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 545 Serial Problem — SP 9 Serial Problem — SP 9, Business Solutions (30 minutes) 1. Gross pay (8 days x $125 per day)................................ $1,000.00 FICA Social Security tax deduction (6.2%)* ................. $ 62.00 FICA Medicare tax deduction (1.45%)........................... 14.50 Income tax deduction..................................................... 159.00 Total deductions............................................................. 235.50 Net Pay............................................................................. $ 764.50 *Employee has not reached the maximum limit. 2. 2018 Feb. 26 Wages Expense................................................. 1,000.00 FICA—Social Security Taxes Payable ...... 62.00 FICA—Medicare Taxes Payable................. 14.50 Employee Federal Income Taxes Payable 159.00 Cash ............................................................. 764.50 Record payroll period. 3. 2018 Feb. 26 Payroll Taxes Expense..................................... 122.50 FICA—Social Sec. Taxes Payable ............. 62.00 FICA Medicare Taxes Payable................. 14.50 State Unemployment Taxes Payable*....... 40.00 Federal Unemployment Taxes Payable** .... 6.00 Record employer payroll taxes. * $1,000 x .04 = $40.00 **$1,000 x .006 = $6.00 4. 2018 Mar. 25 Accounts Receivable – Wildcat Services....... 2,912 Sales............................................................. 2,800 Sales Taxes Payable................................... 112 Sold merchandise on credit and collected sales tax of 4%. Mar. 25 Cost of Goods Sold........................................... 2,002 Merchandise Inventory............................... 2,002 Record cost of March 25 sale.

Bug-Off

Comprehensive Problem

Exterminators (100 minutes)

Correct ending balance of cash and the amount of the omitted check Balance per bank............................. $15,100 Plus deposit in transit..................... 2,450 Less outstanding checks ............... (1,800) Reconciled balance......................... $15,750 Balance per books .......................... $17,000 Plus interest earned........................ 52 Less service charges...................... (15) Balance before omitted check ....... 17,037 Reconciled balance (from above)....... (15,750) Omitted check.................................. $ 1,287 b. Allowance for doubtful accounts Unadjusted balance ........................ $ 828 credit Anticipated write-off........................ (679) debit Revised unadjusted balance.......... 149 credit Desired ending balance.................. 700 credit Necessary adjustment.................... $ 551 credit c. Depreciation expense on the truck Cost .................................................. $32,000 Less salvage value.......................... (8,000) Depreciable cost.............................. $24,000 Useful life (years) ............................ 4 Annual depreciation for 2017......... $ 6,000 d. Depreciation expense on the equipment Sprayer Injector Cost .................................................. $27,000 $18,000 Less salvage value.......................... (3,000) (2,500) Depreciable cost.............................. $24,000 $15,500 Useful life (years) ............................ 8 5 Depreciation for 2017...................... $ 3,000 $ 3,100

Part

The note originated on December 31, 2017. The first time interest will be payable is December 31, 2018. The annual interest expense on the note is $1,200 ($15,000 x .08).

Thus, the adjusted balance for both Interest Payable and Interest Expense at December 31, 2017, is zero.

Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 547 Comprehensive Problem (Continued) e. Adjusted revenue and unearned revenue balances Total advance received...................................... $ 3,840 Months in contract .............................................  12 Revenue per month............................................ $ 320 Months of services provided............................. 5 Total earned ($320 x 5 months)......................... (1,600) Overstatement of revenue ($3,840 – $1,600) ... $ 2,240 Extermination Services Revenue account Unadjusted balance ........................................... $60,000 Overstatement .................................................... (2,240) Adjusted balance................................................ $57,760 Unearned Services Revenue account Unadjusted balance ........................................... $ 0 Adjustment.......................................................... 2,240 Adjusted balance................................................ $ 2,240

Warranty expense Adjusted services revenue for the year (from e)... $57,760 Warranty percent................................................ 2.5% Warranty expense (estimated).......................... $ 1,444 Estimated warranty liability Unadjusted balance ........................................... $ 1,400 credit Warranty expense .............................................. 1,444 credit Ending adjusted balance................................... $ 2,844 credit

by McGraw-Hill

interest

g. Note payable and

accrual

Comprehensive Problem (Continued) Part 2

McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Financial & Managerial Accounting, 7th Edition 548

BUG-OFF EXTERMINATORS December 31, 2017 Unadjusted Trial Balance Adjustments . Adjusted Trial Balance Cash .................................. $ 17,000 (a) $1,250 $ 15,750 Accountsreceivable........ 4,000 (b1) 679 3,321 Allowancefor doubtfulaccounts......... $ 828 (b1) $ 679 (b2) 551 $ 700 Merchandiseinventory... 11,700 11,700 Trucks................................ 32,000 32,000 Accum.deprec.–Trucks.. 0 (c) 6,000 6,000 Equipment......................... 45,000 45,000 Accum.deprec.–Equip... 12,200 (d) 6,100 18,300 Accountspayable............ 5,000 (a) 1,287 3,713 Estim.warrantyliability... 1,400 (f) 1,444 2,844 Unearnedservicesrev.... 0 (e) 2,240 2,240 Interest payable............... 0 0 Long-termnotespayable 15,000 15,000 Commonstock................. 10,000 10,000 Retainedearnings............ 49,700 49,700 Dividends............................ 10,000 10,000 Extermination servicesrevenue........... 60,000 (e) 2,240 57,760 Interestrevenue 872 (a) 52 924 Sales................................... 71,026 71,026 Costofgoodssold.......... 46,300 46,300 Deprec.expense–Trucks 0 (c) 6,000 6,000 Deprec.expense–Equip.. 0 (d) 6,100 6,100 Wagesexpense 35,000 35,000 Interestexpense............... 0 0 Rentexpense.................... 9,000 9,000 Baddebtsexpense.......... 0 (b2) 551 551 Miscellaneousexpense.. 1,226 (a) 15 1,241 Repairsexpense.............. 8,000 8,000 Utilitiesexpense............... 6,800 6,800 Warrantyexpense............ 0 (f) 1,444 1,444 Totals................................. $226,026 $226,026 $18,316 $18,316 $238,207 $238,207

©2018 by McGraw-Hill Education This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions Manual, Chapter 9 549 Comprehensive Problem (Continued) Part 3 2017 (a) Miscellaneous Expenses......................................... 15 Accounts Payable.................................................... 1,287 Interest Revenue................................................ 52 Cash .................................................................... 1,250 Adjust cash account. (Separate entries are acceptable.) (b1) Allowance for Doubtful Accounts .......................... 679 Accounts Receivable......................................... 679 Wrote off uncollectible accounts. (b2) Bad Debts Expense.................................................. 551 Allowance for Doubtful Accounts .................... 551 Recognize bad debts expense. (c) Depreciation Expense—Trucks.............................. 6,000 Accumulated Depreciation—Trucks ................ 6,000 Depreciation on truck. (d) Depreciation Expense Equipment ....................... 6,100 Accumulated Depreciation—Equipment ......... 6,100 Depreciation on equipment. (e) Extermination Services Revenue ........................... 2,240 Unearned Services Revenue............................. 2,240 Adjust for unearned revenues. (f) Warranty Expense.................................................... 1,444 Estimated Warranty Liability............................. 1,444 Estimate warranty expense. (g) No interest accrual required for 2017