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

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

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2 E 13-1How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay CURRENT LIABILITY (b) Estimated taxes payable CURRENT LIABILITY © Service warranties on appliance sales CURRENT or LONGTERM LIABILITY depending upon terms of lease

3 (d) Bank overdraft CURRENT LIABILITY (e) Employee payroll deductions unremitted. CURRENT LIABILITY (f) Unpaid bonus to officers CURRENT LIABILITY (g) Deposit received from customer to guarantee performance of a contract. CURRENT LIABILITY or LONGTERM

4 (h) Sales taxes payable CURRENT LIABILITY (I) Gift certificates sold to customers but not yet redeemed. CURRENT LIABILITY (j) Premium offers outstanding. CURRENT LIABILITY (k) Discount on notes payable. CONTRA TO NOTE PAYABLE

5 (l) Personal injury claim pending. FOOTNOTE unless FAS 5 contingency (M) Current maturities of long-term debt to be paid from current assets. CURRENT LIABILITY (N) Cash dividends declared but not yet paid CURRENT LIABILITY (O) Dividends in arrears on preferred stock. FOOTNOTE (p) Loans from officers as either LONGTERM or CURRENT LIABILITY

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7 The following are selected 2007 transactions of Sean Astin Corporation. a.PREPARE JOURNAL ENTRIES for the selected transactions above. Sept 1.Purchased inventory from Encino Company on account for $50,0000. Astin records purchases GROSS and uses a PERIODIC INVENTORY SYSTEM. Purchases $50,000 A/P $50,000

8 The following are selected 2007 transactions of Sean Astin Corporation. a.PREPARE JOURNAL ENTRIES for the selected transactions above. Oct 1.Issued a $50,000, 12-month, 8% note to Encino in payment of account. A/P $50,000 N/P $50,000

9 The following are selected 2007 transactions of Sean Astin Corporation. a.PREPARE JOURNAL ENTRIES for the selected transactions above. Oct 1.Borrowed $50,000 from the Shore Bank by signing a 12-month, non-interest bearing $54,000 note. Cash $50,000 Discount $ 4,000 N/P $54,000

10 B.Prepare ADJUSTING ENTRIES. FOR INTEREST BEARING NOTE. Oct 1.Issued a $50,000, 12-month, 8% note to Encino in payment of account. $50,000 x.08 x 3/12 = $1,000 Interest expense $1,000 Interest payable $1,000

11 B.Prepare ADJUSTING ENTRIES. FOR NON-INTEREST BEARING NOTE. $50,000 x.08 x 3/12 = $1,000 Interest expense $1,000 Discount $1,000 Oct 1.Borrowed $50,000 from the Shore Bank by signing a 12-month, non-interest bearing $54,000 note. or ($4,000 / 12) * 3 = $1,000

12 C. Compute the total net liability to be reported on the December 31 balance sheet for: (1)THE INTEREST BEARING NOTE: Interest payable $ 1,000 N/P $ 50, Total net liability $51,000

13 C. Compute the total net liability to be reported on the December 31 balance sheet for: (1)THE NON-INTEREST BEARING NOTE: N/P $54,000 - Unamortized Disc.... $3,000 (4K- 1K) Net liability $51,000

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15 12/31/07 Kate Holmes has $7,000,000 of short-term debt in form of n/p to Gotham Bank due periodically in /28/08, Holmes enters into refinancing agreement with Gotham Can borrow up to 60% of gross amount of its A/R. Receivables will range between LO $6 MIL in May to HI of $8 MIL in Oct during Interest on short-term debt is 15%. New agreement has fluctuating interest of 1% above prime rate on notes due in /31/07 balance sheet is issued INSTRUCTIONS: Prepare partial balance sheet for Holmes for 12/31/07 showing how $7,000,000 of short-term debt should be presented, including footnote disclosure.

16 Enterprise is REQUIRED to exclude a short-term obligation from current liabilities only if BOTH of the following conditions are met: INTENDS TO REFINANCE the obligation on long-term basis… AND... DEMONSTRATES AN ABILITY to consummate the refinancing. * A financing agreement suffices

17 Kate Holmes Company Partial Balance Sheet December 31, 2007 Current liabilities: Notes payable (Note 1)$3,400,000 Long-term debt: Notes payable expected to be refinanced in 2008 (Note 1) 3,600,000 Note 1. Under a financing agreement with Gotham State Bank the Company may borrow up to 60% of the gross amount of its accounts receivable at an interest cost of 1% above the prime rate. The Company intends to issue notes maturing in 2012 to replace $3,600,000 of short-term, 15%, notes due periodically in Because the amount that can be borrowed may range from $3,600,000 to $4,800,000, only $3,600,000 of the $7,000,000 of currently maturing debt has been reclassified as long- term debt.

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19 Matt Broderick Co. began operations on January 2, employees who work 8-hr days. Paid hourly. Each earns 10 paid vacation days/yr Each earns 6 paid sick days/yr. Vacation may be taken after 1/15 of year following year earned. Sick days can be taken as soon as earned. Unused sick days accumulate. ADDITIONALLY Actual HourlyVacation Days UsedSick Days Used Wage Rate by Each Employeeby Each Employee $10$110945

20 Matt Broderick Co. has chosen to Accrue cost of compensated absences at rates of pay in effect during period when earned. And to accrue sick pay when earned. INSTRUCTIONS: (a) Prepare journal entries to record transactions related to compensated absences during 2006 and (b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2006 and 2007.

21 (1)9 employees X $10.00/hr. X 8 hrs./day X 10 days = $7,200 ? What is the cost for vacation pay for 2006? (2)9 employees X $10.00/hr. X 8 hrs./day X 6 days =$4,320 ? What is the cost for sick pay for 2006? ? What is the journal entry to record both for 2006? Wage expense………………11,520 Vacation wages/p…………… 7,200 Sick wages payable…………. 4,320 ? What additional entry is needed for 2006? (3)9 employees X $10.00/hr. X 8 hrs./day X 4 days =$2,880 Sick wages payable……… 2,880 Cash………………………….2,880 Sick days used

22 ? What is the cost for vacation pay for 2007? ? What is the cost for sick pay for 2007? ? What is the journal entry to record both for 2007? Wage expense………………12,672 Vacation wages/p…………… 7,920 Sick wages payable…………. 4,752 ? How much cash goes out for vacation and sick pay in 2007? (4)9 employees X $11.00/hr. X 8 hrs./day X 10 days = $7,920 (5)9 employees X $11.00/hr. X 8 hrs./day X 6 days =$4,752 (8)9 employees X $11.00/hr. X 8 hrs./day X 9 days =$7,128 vacation 9 employees X $11.00/hr. X 8 hrs./day X 5 days =+3,960sick = $11,088 TOTAL CREDIT TO CASH IN JOURNAL ENTRY $11,088

23 By how much does sick pay payable get debited? (7)9 employees X $10.00/hr. X 8 hrs./day X (6-4=2) days =$1,440 9 employees X $11.00/hr. X 8 hrs./day X (5-2=3) days =+2,376 = $3,816 5 days in total; 2 from last year, 3 from this year. By how much vacation payable get debited? (6)9 employees X $10.00/hr. X 8 hrs./day X 9 days =$6,480 all is from last year What else gets debited? Wage expense (for extra $1 for vacation and sick pay). DR. TO SICK WAGES/P DR. TO VACATION/P SICK PAY: 9 PEOPLE X ($11-$10) X 8HRS/DAY X 2 DAYS last yr = $144 VACATION PAY: 9 PEOPLE X ($11-$10) X 8HRS/DAY X 9 DAYS last yr = $648 $792 DR TO WAGE EXPENSE

24 (b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2006 and Sick wages payable….… $3,816 Vacation wages payable $6,480 Cash……………. $11,088 Wage Expense……………. $792

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

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27 Green Day Hardware Company payroll for November 2007 is summarized below: Amt subject to Payroll Taxes Unemployment tax PayrollWages dueFICAFEDSTATE Factory$120,000$120,000$40,000$40,000 Sales 32,000 32,000 4,000 4,000 Administrative 36,000 36, $188,000$188,000$44,000$44,000 At this point in the year some employees have already received wages in excess of those to which payroll taxes apply. Assume that the SUTA is 2.5%. The FICA rate is 7.65% on an emloyees wages to $90,000 and then 1.45% in excess of $90,000. Of the $188,000 wages subject to FICA tax, $20,000 is in excess of $90,000 to the sales wages. FUTA tax rate is.8% after credits. Income tax withheld amounts to $16K for factory, $7,000 for sales, and $6,000 for administrative. A.Prepare a schedule showing the employer's total cost of wages for November by function.

28 Function:TOTALFACTORYSALES ADMIN Wages $188,000 $120,000$32,000$36,000 Additional Costs FICA $120,000 x.0765 = $9,180 $9,180 $32,000 in total wages ($20,000 are taxed at 1.45%) and the rest at 7.65%. $20,000 x.0145 = $290 + $12,000 x.0765% = $ $1,208 $36,000 x.0765 = $2,754 $2,754 $13,142

29 Function:TOTALFACTORYSALES ADMIN FUTA Wages $44,000 $40,000$4,000$-0- Additional Costs FICA $9,180 $1,208 $2,754 $13,142 FUTA $40,000 x.008 = $320 $320 $4,000 x.008 = $32 $32--- $352 $0 x.008 = $0

30 Function:TOTALFACTORYSALES ADMIN SUTA Wages $44,000 $40,000$4,000$-0- Additional Costs FICA $9,180 $1,208 $2,754 $13,142 FUTA $320 $32--- $352 SUTA $40,000 x.025 = $1,000 $1,000 $4,000 x.025 = $100 $100 $1,

31 Function:TOTALFACTORYSALES ADMIN Additional Costs FICA $9,180 $1,208 $2,754 $13,142 FUTA $320 $32--- $352 SUTA $1,000$100 $1, $202,594$130,500 $33,340 $2,754

32 B.Prepare the JOURNAL ENTRIES to record the factory, sales and administrative payrolls including the employer's payroll taxes. FACTORY PAYROLL Wages/salaries expense…….. $120,000 Withholding taxes payable………….. $16,000 (given) FICA payable………………………….$ 9,180 (calculated) Cash…………………………………… 94,820 Payroll Tax Expense………………..$10,500 FICA payable…………………………….$9,180 (matched above) FUTA payable…………………………… 320 (calculated) SUTA payable…………………………… $1000 (calculated)

33 B.Prepare the JOURNAL ENTRIES to record the factory, sales and administrative payrolls including the employer's payroll taxes. SALES PAYROLL Wages/salaries expense…….. $32,000 Withholding taxes payable………….. $7,000 (given) FICA payable………………………….$ 1,208 (calculated) Cash…………………………………… 23,792 Payroll Tax Expense………………..$1,340 FICA payable…………………………….$1,208 (matched above) FUTA payable…………………………… 32 (calculated) SUTA payable…………………………… $100 (calculated)

34 B.Prepare the JOURNAL ENTRIES to record the factory, sales and administrative payrolls including the employer's payroll taxes. ADMINISTRATIVE PAYROLL Wages/salaries expense…….. $36,000 Withholding taxes payable………….. $6,000 (given) FICA payable………………………….$ 2,754(calculated) Cash…………………………………… 27,246 Payroll Tax Expense………………..$2,754 FICA payable…………………………….$2,754 matched above

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36 Soundgarden Company sold 200 copy making machines in 2007 for $4,000 apiece, together with a one-year warranty. Maintenance on each machine during the warranty period averages $330. A.Prepare the entries to record the sale of the machines and the related warranty costs, assuming that the accrual method is used. Actual warranty costs incurred in 2007 were $17,000. To record sales of machines. Cash………………$800,000 (200 x $4K) Sales…………………..$800,000 To record warranty expense. Warranty expense………$17,000 Cash……………………..$17,000 (actual charges) Total estimated warranty charges 200 x $330 = $66,000 - $17,000 already charged $49,000 addtl adjustment needed Warranty expense… $49,000 Estimated liability under warranties…….$49,000

37 B.Prepare the same using the CASH BASIS. To record sales Cash…………………$800,000 Sales………………..$800,000 (same cause they were all cash sales). To record warranty expense Warranty expense……….$17,000 Cash…………………….$17,000 (only part paid in cash)

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39 Jud Buechler, president of the Supporting Cast Company, has a bonus arrangement with the company under which he receives 15% of the net income (after deducting taxes and bonuses) each year. For the current year, the net income before deducting either the provision for income taxes or the bonus is $299,750. The bonus is deductible for tax purposes, and the effective tax rate may be assumed to be 40%. Initial formulas: B =.15 ($299,750NI - B - T) T =.40 ($299,750 - B) * bonus is deductible B =.15 ($299,750 - B -.40($299,750 - B)) B =.15 ($299,750 - B - $119, B) B =.15 ($179, B)B = $26, B 1.09B = $26, BONUS = $24,750

40 B.Compute the appropriate provision for federal income taxes. T =.40 ($299,750 - B) T =.40 ($299,750 - $24,750) T =.40 ($275,000) T = $110,000 C.JOURNAL ENTRY to record bonus (accrued). Bonus expense………….. $24,750 Bonus payable…………….$24,750


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