1. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 10 1

2. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 2 Account for current liabilities of known amount Account for current liabilities that must be estimated Calculate payroll and payroll tax amounts Journalize basic payroll transactions

3. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Account for current liabilities of known amount 3 1 1

4. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Current liabilities must be paid in a year or less Short-term notes payable 4

5. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. For products and services purchased on account Integrated accounts payable and inventory systems Paid later within a discount period or not Usually due in 30 days 5

6. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Common form of financing Incurs interest expense which is paid later 6

7. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Tax levied by state on retail sales Record sales, with the taxes, as follows Record and forward the sales tax to the state 7

8. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Initially note recorded as long-term Second entry needed to record current portion Does not change total amount due Interest still accrues 8

9. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Expense incurred, but not yet paid Debit expense and credit an accrued liability 9

10. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Cash received in advance of performing work Obligation to provide goods or services Revenue earned as goods delivered or work performed Debit liability and credit revenues as earned 10

11. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. On December 31, 2012, Edgmont, Co., purchased $10,000 of inventory on a one-year, 10% note payable. Edgmont uses a perpetual inventory system. 1.Journalize the company’s accrual of interest expense on June 30, 2013, its fiscal year-end. 11

12. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. (Continued) 2. Journalize the company’s payment of the note plus interest on December 31, 2013 12

13. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Account for current liabilities that must be estimated 13 2 2

14. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Warranty Payable Guarantee that products are free of defects Recorded in the same period as sales As sales are incurred and inventory updated, also record estimated warranty expense Remove payable as warranty claims honored Liability balance equals expected future claims 14

15. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Potential liability May or may not become actual liability Depends on a future event Accounting treatment depends on likelihood of actual loss 15

16. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. How to report based upon likelihood 16

17. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Trekster Corporation guarantees its snowmobiles for three years. Company experience indicates that warranty costs will add up to 4% of sales. Assume that the Trekster dealer in Colorado Springs made sales totaling $533,000 during 2012. The company received cash for 30% of the sales and notes receivable for the remainder. Warranty payments totaled $17,000 during 2012. Requirements: 1. Record the sales, warranty expense, and warranty payments for the company. 2. Post to the Estimated warranty payable T-account. At the end of 2012, how much in Estimated warranty payable does the company owe? 17

18. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 1. Record the sales, warranty expense, and warranty payments for the company. 18

19. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 1. Record the sales, warranty expense, and warranty payments for the company. 19

20. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 1. Record the sales, warranty expense, and warranty payments for the company. 20

21. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 2. Post to the Estimated warranty payable T-account. At the end of 2012, how much in Estimated warranty payable does the company owe? 21

22. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Calculate payroll and payroll tax amounts 22 3 3

23. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 23 Salary Wages Commission Bonus Benefits

24. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Straight time Overtime Gross pay Net pay 24

25. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Required deductions from employees’ gross pay Amount depends on Optional deductions–at employee’s request 25

26. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Employee files to indicate allowances claimed 26

27. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Program to provide retirement, disability, and medical benefits Two components: Old age, survivors’ and disability insurance (OASDI) Health insurance (Medicare) 27

28. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. An employee earned $99,800 prior to December and $10,000 for December Total of $109,800 for the year 28

29. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Employers must pay additional payroll taxes These are not employee deductions Employer (FICA) tax State, federal unemployment compensation taxes Finances workers’ compensation for people laid off SUTA (State unemployment tax) FUTA (Federal unemployment tax 29

30. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Payroll costs for an employee who earns a weekly salary of $1,000 30

31. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Gloria Traxell is paid $800 for a 40-hour workweek and time-and-a- half for hours above 40. Requirements: 1. Compute Traxell’s gross pay for working 48 hours during the first week of February. Carry amounts to the nearest cent. 31

32. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 2. Traxell is single, and her income tax withholding is 10% of total pay. Traxell’s only payroll deductions are payroll taxes. Compute Traxell’s net (take-home) pay for the week. Use a 7.65% FICA tax rate, and carry amounts to the nearest cent. 32

33. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Return to the Gloria Traxell payroll situation in Short Exercise 10-4. Traxell’s employer, College of San Bernardino, pays all the standard payroll taxes plus benefits for the employee retirement plan (5% of total pay), health insurance ($113 per employee per month), and disability insurance ($8 per employee per month). Requirements: 1. Compute College of San Bernardino’s total expense of employing Gloria Traxell for the 48 hours that she worked during the first week of February. Carry amounts to the nearest cent. 33

34. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 34 Straight-time pay for 40 hours Overtime pay for 8 hours Total pay to employee Employer payroll taxes: FICA State Unemployment Taxes Federal Unemployment Taxes Benefit cost: Retirement plan Health insurance Disability insurance Total payroll taxes and benefit cost Total expense of employer

35. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Journalize basic payroll transactions 35 4 4

36. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 1. Record the payroll expense and payment Record total payroll expense as a liability Record payment of salaries with deductions recorded as liabilities. 36

37. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 2. Record any employee benefits paid by the employer Record total benefit expense as a liability Record the benefits paid as expenses 37

38. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 3. Record the employer payroll tax expense and payment Record payroll tax expense as a liability Record payment of employee withholdings and the matching portion of FICA 38

39. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Controls for efficiency Use of two payroll bank accounts Use of computer processing Use of direct deposits to facilitate reconciliation Controls to safeguard payroll disbursements Hiring and firing separate from accounting Use of photo IDs and time clocks 39

40. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Companies have separate departments for payroll functions: Human Resources Department hires and fires Payroll Department maintains employee records Accounting Department records transactions The Treasurer (or bursar) distributes paychecks 40

41. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Consult your solutions for Short Exercises 10-4 and 10-5. 1. Journalize salary expense for College of San Bernardino related to the employment of Gloria Traxell. 41 Journal Entry DATE ACCOUNTS DEBITCREDIT

42. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. S10-7: JOURNALIZING PAYROLL 1. Journalize salary payment for College of San Bernardino related to the employment of Gloria Traxell. 42 Journal Entry DATE ACCOUNTS DEBITCREDIT

43. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 2. Journalize benefits expense for College of San Bernardino related to the employment of Gloria Traxell. 43 Journal Entry DATE ACCOUNTS DEBITCREDIT

44. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 3. Journalize employer payroll taxes for College of San Bernardino related to the employment of Gloria Traxell. 44 Journal Entry DATEACCOUNTSDEBITCREDIT

45. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 45

46. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Copyright All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. 46