ACG- Connect Ch.9

Sylvestor Systems borrows $195,000 cash on May 15, 2017, by signing a 120-day, 6% note.

1. On what date does this note mature?
September 11, 2017

September 12, 2017

Correct

September 13, 2017

September 14, 2017

September 15, 2017

2. Assume the face value of the note equals $195,000, the principal of the loan.
 

Explanation

Maturity date = May 15 + 120 days = September 12, 2017.

Required information

[The following information applies to the questions displayed below.]

BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $118,500 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 2.9% of the first $7,000 paid to its employee.

	Gross Pay through August					Gross Pay for September
a.		$	6,400				$	1,700
b.			20,100					4,000
c.			114,100					9,900

ompute BMX’s amounts for each of these four taxes as applied to the employee’s gross earnings for September under each of three separate situations (a), (b), and (c). (Round your answers to 2 decimal places.)

a)
Tax	September Earnings Subject to Tax	Tax Rate	Tax Amount
FICA—Social Security	$1,700.00	6.20%	$105.40
FICA—Medicare	1,700.00	1.45%	24.65
FUTA	600.00	0.60%	3.60
SUTA	600.00	2.90%	17.40
b)
Tax	September Earnings Subject to Tax	Tax Rate	Tax Amount
FICA—Social Security	$4,000.00	6.20%	$248.00
FICA—Medicare	4,000.00	1.45%	58.00
FUTA	0
SUTA	0
c)
Tax	September Earnings Subject to Tax	Tax Rate	Tax Amount
FICA—Social Security	$4,400	6.20%	$272.80
FICA—Medicare	9,900	1.45%	143.55
FUTA	0
SUTA	0

Explanation

		Subject to Tax		Rate		Tax		Explanation
(a)	FICA—Social Security	$	1,700	6.20	%	$	105.40	Full amount is subject to tax.
	FICA—Medicare		1,700	1.45			24.65	Full amount is subject to tax.
	FUTA		600	0.60			3.60	$1,100 is over the maximum.
	SUTA		600	2.90			17.40	$1,100 is over the maximum.
(b)	FICA—Social Security	$	4,000	6.20	%	$	248.00	Full amount is subject to tax.
	FICA—Medicare		4,000	1.45			58.00	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.
(c)	FICA—Social Security	$	4,400	6.20	%	$	272.80	$5,500 is over the maximum.
	FICA—Medicare		9,900	1.45			143.55	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.

3. Compute BMX’s amounts for each of these four taxes as applied to the employee’s gross earnings for September under each of three separate situations (a), (b), and (c). (Round your answers to 2 decimal places.)
 

Explanation

		Subject to Tax		Rate		Tax		Explanation
(a)	FICA—Social Security	$	1,700	6.20	%	$	105.40	Full amount is subject to tax.
	FICA—Medicare		1,700	1.45			24.65	Full amount is subject to tax.
	FUTA		600	0.60			3.60	$1,100 is over the maximum.
	SUTA		600	2.90			17.40	$1,100 is over the maximum.
(b)	FICA—Social Security	$	4,000	6.20	%	$	248.00	Full amount is subject to tax.
	FICA—Medicare		4,000	1.45			58.00	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.
(c)	FICA—Social Security	$	4,400	6.20	%	$	272.80	$5,500 is over the maximum.
	FICA—Medicare		9,900	1.45			143.55	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.

4. Required information

[The following information applies to the questions displayed below.]

BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $118,500 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 2.9% of the first $7,000 paid to its employee.

	Gross Pay through August					Gross Pay for September
a.		$	6,400				$	1,700
b.			20,100					4,000
c.			114,100					9,900

Assuming situation a, prepare the employer’s September 30 journal entries to record salary expense and its related payroll liabilities for this employee. The employee’s federal income taxes withheld by the employer are $60 for this pay period. (Round your answers to 2 decimal places.)
 

Explanation

	Subject to Tax		Rate		Tax		Explanation
FICA—Social Security	$	1,700.00	6.20	%	$	105.40	Full amount is subject to tax.
FICA—Medicare		1,700.00	1.45	%		24.65	Full amount is subject to tax.

Reference links

4. Assuming situation a, prepare the employer’s September 30 journal entries to record the employer’s payroll taxes expense and its related liabilities. (Round your answers to 2 decimal places.)

	Employer Payroll taxes September earnings subject to tax Tax Rate Tax Amount FICA—Social Security 1,700.00 6.20% +/-0.01$105.40 FICA—Medicare 1,700.00 1.45% +/-0.0124.65 FUTA 600.00 0.60% +/-0.013.60 SUTA 600.00 2.90% +/-0.0117.40 Total Payroll Taxes Expense $151.05

No	Date	General Journal	Debit	Credit
1	Sep 30	Payroll taxes expense	+/-0.04151.05
1		FICA—Social sec. taxes payable		+/-0.01105.40
1		FICA—Medicare taxes payable		+/-0.0124.65
1		Federal unemployment taxes payable		+/-0.013.60
1		State unemployment taxes payable		+/-0.0117.40

Explanation

	Subject to Tax		Rate		Tax		Explanation
FICA—Social Security	$	1,700.00	6.20	%	$	105.40	Full amount is subject to tax.
FICA—Medicare		1,700.00	1.45			24.65	Full amount is subject to tax.
FUTA		600.00	0.60			3.60	$1,100 is over the maximum.
SUTA		600.00	2.90			17.40	$1,100 is over the maximum.

5. Hitzu Co. sold a copier costing $5,500 with a two-year parts warranty to a customer on August 16, 2017, for $11,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $121 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.

1. How much warranty expense does the company report in 2017 for this copier?
2. How much is the estimated warranty liability for this copier as of December 31, 2017?
3. How much warranty expense does the company report in 2018 for this copier?
4. How much is the estimated warranty liability for this copier as of December 31, 2018?

5. Prepare journal entries to record (a) the copier’s sale; (b) the adjustment on December 31, 2017, to recognize the warranty expense; and (c) the repairs that occur in November 2018.

Explanation

1.
Warranty Expense = 4% of dollar sales = 4% × $11,000 = $440.
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 $440.
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:
 

Ending 2017 balance		$	440
Less parts cost			(121	)
Ending 2018 balance		$	319

6.For the year ended December 31, 2017, Lopez Company has implemented an employee bonus program based on Lopez’s net income, which employees will share equally. Lopez’s bonus expense is computed as $33,495.

1&2. Prepare the journal entry at December 31, 2017, to record the bonus due and January 19, 2018, to record payment of the bonus to employees.

Explanation

No further explanation details are available for this problem.

7. Listed below are a few transactions and events of Maxum Company.
 

1. Employees earn vacation pay at a rate of one day per month. During December, 33 employees qualify for one vacation day each. Their average daily wage is $300 per employee.
2. During December, Maxum Company sold 3,700 units of a product that carries a 60-day warranty. December sales for this product total $131,000. The company expects 6% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $20.

Prepare any necessary adjusting entries at December 31, 2017, for Maxum Company’s year-end financial statements for each of the above separate transactions and events.

8. Paloma Co. has four employees. FICA Social Security taxes are 6.2% of the first $118,500 paid to each employee, and FICA Medicare taxes are 1.45% of gross pay. Also, for the first $7,000 paid to each employee, the company’s FUTA taxes are 0.6% and SUTA taxes are 2.15%. The company is preparing its payroll calculations for the week ended August 25. Payroll records show the following information for the company’s four employees.

						Current Week
Name	Gross Pay through Aug. 18					Gross Pay					Income Tax Withholding
Dali		$	116,000				$	4,000				$	568
Trey			116,650					1,850					298
Kiesha			9,100					650					56
Chee			3,050					600					45

In addition to gross pay, the company must pay one-half of the $100 per employee weekly health insurance; each employee pays the remaining one-half. The company also contributes an extra 8% of each employee’s gross pay (at no cost to employees) to a pension fund.

Required:

Compute the following for the week ended August 25. (Round your intermediate calculations and final answers to 2 decimal places.):

1) Employees' FICA Withholdings for Social Security
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali	$2,500.00	6.20%	155.00
Trey	1,850.00	6.20%	114.70
Kiesha	650.00	6.20%	40.30
Chee	600.00	6.20%	37.20
		Total	$347.20
2) Employees' FICA Withholdings for Medicare
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali	$4,000.00	1.45%	$58.00
Trey	1,850.00	1.45%	26.83
Kiesha	650.00	1.45%	9.43
Chee	600.00	1.45%	8.70
		Total	$102.96
3) Employer's FICA Taxes for Social Security
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali	$2,500.00	6.20%	$155.00
Trey	1,850.00	6.20%	114.70
Kiesha	650.00	6.20%	40.30
Chee	600.00	6.20%	37.20
		Total	$347.20
4) Employer's FICA Taxes for Medicare
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali	$4,000.00	1.45%	$58.00
Trey	1,850.00	1.45%	26.83
Kiesha	650.00	1.45%	9.43
Chee	600.00	1.45%	8.70
		Total	$102.96
5) Employer's FUTA Taxes
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali		0.60%
Trey
Kiesha
Chee	600.00	0.60%	$3.60
		Total	$3.60
6) Employer's SUTA Taxes
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali		2.15%
Trey
Kiesha
Chee	600.00	2.15%	$12.90
		Total	$12.90
7) Each Employee's Net (take-home) Pay
Employee	Dali	Trey	Kiesha	Chee	Total
Gross Pay	$4,000.00	$1,850.00	$650.00	$600.00	$7,100.00
Income tax withholding	568.00	298.00	56.00	45.00	967.00
FICA - Social Security	155.00	114.70	40.30	37.20	347.20
FICA - Medicare	58.00	26.83	9.43	8.70	102.96
Health Insurance	50.00	50.00	50.00	50.00	200.00
Net Pay	$3,169.00	$1,360.47	$494.27	$459.10	$5,482.84
8) Total Payroll Related Expense for Each Employee
Employee	Dali	Trey	Kiesha	Chee	Total
Gross Pay	$4,000.00	$1,850.00	$650.00	$600.00	$7,100.00
FICA - Social Security	155.00	114.70	40.30	37.20	347.20
FICA - Medicare	58.00	26.83	9.43	8.70	102.96
FUTA	0.00	0.00	0.00	3.60	3.60
SUTA	0.00	0.00	0.00	12.90	12.90
Health Insurance	50.00	50.00	50.00	50.00	200.00
Pension	320.00	148.00	52.00	48.00	568.00
Total Payroll Expense	$4,583.00	$2,189.53	$801.73	$760.40	$8,334.66

Explanation

1. Each employee’s FICA withholdings for Social Security.
 

	Dali			Trey			Kiesha			Chee			Total
Maximum base	$	118,500		$	118,500		$	118,500		$	118,500
Earned through 8/18		116,000			116,650			9,100			3,050
Yet under maximum	$	2,500		$	1,850		$	109,400		$	115,450
Earned this week	$	4,000		$	1,850		$	650		$	600
Subject to tax		2,500			1,850			650			600
Tax rate		6.20	%		6.20	%		6.20	%		6.20	%
Social Security tax	$	155.00		$	114.70		$	40.30		$	37.20		$	347.20

2. Each employee’s FICA withholdings for Medicare.

  

	Dali			Trey			Kiesha			Chee			Total
Earned this week	$	4,000		$	1,850		$	650		$	600
Tax rate		1.45	%		1.45	%		1.45	%		1.45	%
Medicare tax	$	58.00		$	26.83		$	9.43		$	8.70		$	102.96

3. Employer's FICA taxes for Social Security.
 

	Dali			Trey			Kiesha			Chee			Total
Amount from Social Security	$	155.00		$	114.70		$	40.30		$	37.20		$	347.20

4. Employer's FICA taxes for Medicare.

  

	Dali			Trey			Kiesha			Chee			Total
Amount from Medicare	$	58.00		$	26.83		$	9.43		$	8.70		$	102.96

5. Employer's FUTA taxes.

  

	Dali			Trey			Kiesha			Chee			Total
Maximum base	$	7,000		$	7,000		$	7,000		$	7,000
Earned through 8/18		116,000			116,650			9,100			3,050
Amount subject to tax		0			0			0			3,950
Earned this week	$	4,000		$	1,850		$	650		$	600
Subject to tax		0			0			0			600
Tax rate		.60	%		.60	%		.60	%		.60	%
FUTA tax	$	0.00		$	0.00		$	0.00		$	3.60		$	3.60

6. Employer's SUTA taxes.
 

	Dali			Trey			Kiesha			Chee			Total
Subject to tax (from 5)	$	0		$	0		$	0		$	600
Tax rate		2.15	%		2.15	%		2.15	%		2.15	%
SUTA tax	$	0.00		$	0.00		$	0.00		$	12.90		$	12.90

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

  

	Dali			Trey			Kiesha			Chee			Total
Gross earnings	$	4,000.00		$	1,850.00		$	650.00		$	600.00		$	7,100.00
Less
FICA Social Sec. tax		(155.00	)		(114.70	)		(40.30	)		(37.20	)		(347.20	)
FICA Medicare taxes		(58.00	)		(26.83	)		(9.43	)		(8.70	)		(102.96	)
Withholding taxes		(568.00	)		(298.00	)		(56.00	)		(45.00	)		(967.00	)
Health insurance		(50.00	)		(50.00	)		(50.00	)		(50.0	)		(200.00	)
Take-home pay	$	3,169.00		$	1,360.47		$	494.27		$	459.10		$	5,482.84

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

	Dali			Trey			Kiesha			Chee			Total
Gross earnings	$	4,000.00		$	1,850.00		$	650.00		$	600.00		$	7,100.00
Plus
FICA Social Sec. tax		155.00			114.70			40.30			37.20			347.20
FICA Medicare taxes		58.00			26.83			9.43			8.70			102.96
FUTA tax		0.00			0.00			0.00			3.60			3.60
SUTA tax		0.00			0.00			0.00			12.90			12.90
Health insurance		50.00			50.00			50.00			50.00			200.00
Pension contrib. (8%)		320.00			148.00			52.00			48.00			568.00
Total payroll expense	$	4,583.00		$	2,189.53		$	801.73		$	760.40		$	8,334.66

9. Francisco Company has 20 employees, each of whom earns $3,200 per month and is paid on the last day of each month. All 20 have been employed continuously at this amount since January 1. On March 1, the following accounts and balances exist in its general ledger:
 

a.      FICA—Social Security Taxes Payable, $7,936; FICA—Medicare Taxes Payable, $1,856. (The balances of these accounts represent total liabilities for both the employer's and employees' FICA taxes for the February payroll only.)

b.     Employees' Federal Income Taxes Payable, $16,000 (liability for February only).

c.      Federal Unemployment Taxes Payable, $768 (liability for January and February together).

d.     State Unemployment Taxes Payable, $5,120 (liability for January and February together).

During March and April, the company had the following payroll transactions.
 

Mar.		15		Issued check payable to Swift Bank, a federal depository bank authorized to accept employers' payments of FICA taxes and employee income tax withholdings. The $25,792 check is in payment of the February FICA and employee income taxes.
		31		Recorded the journal entry for the March salaries payable. Then recorded the cash payment of the March payroll (the company issued checks payable to each employee in payment of the March payroll). The payroll register shows the following summary totals for the March pay period.

Salaries
Office Salaries			Shop Salaries		Gross Pay		FICA Taxes*		Federal Income Taxes		Net Pay
	$	25,600	$	38,400	$	64,000	$	3,968	$	16,000	$	43,104
							$	928

* FICA taxes are Social Security and Medicare, respectively.
 

		31		Recorded the employer's payroll taxes resulting from the March payroll. The company has a merit rating that reduces its state unemployment tax rate to 4.00% of the first $7,000 paid each employee. The federal rate is 0.60%.
Apr.		15		Issued check to Swift Bank in payment of the March FICA and employee income taxes.
		15		Issued check to the State Tax Commission for the January, February, and March state unemployment taxes. Filed the check and the first-quarter tax return with the Commission.
		30		Issued check payable to Swift Bank in payment of the employer's FUTA taxes for the first quarter of the year.
		30		Filed Form 941 with the IRS, reporting the FICA taxes and the employees' federal income tax withholdings for the first quarter.

Required:
Prepare journal entries to record the transactions and events for both March and April. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

Date	General Journal	Debit	Credit
Mar 15	FICA—Social sec. taxes payable	7,936
	FICA—Medicare taxes payable	1,856
	Employee fed. inc. taxes payable	16,000
	Cash		25,792
Mar 31	Office salaries expense	25,600
	Shop salaries expense	38,400
	FICA—Social sec. taxes payable		3,968
	FICA—Medicare taxes payable		928
	Employee fed. inc. taxes payable		16,000
	Salaries payable		43,104
Mar 31	Salaries payable	43,104
	Cash		43,104
Mar 31	Payroll taxes expense	5,448
	FICA—Social sec. taxes payable		3,968
	FICA—Medicare taxes payable		928
	State unemployment taxes payable		480
	Federal unemployment taxes payable		72
Apr 15	FICA—Social sec. taxes payable	7,936
	FICA—Medicare taxes payable	1,856
	Employee fed. inc. taxes payable	16,000
	Cash		25,792
Apr 15	State unemployment taxes payable	5,600
	Cash		5,600
Apr 30	Federal unemployment taxes payable	840
	Cash		840
Apr 30	No journal entry required

Explanation

Mar. 31
Payroll taxes expense* = $5,448
*Amount earned through 2/28 = 2 × $3,200 = $6,400
Subject to SUTA/FUTA in March = $7,000 – $6,400 = $600
SUTA = $600 × 20 employees × 4.0% = $480
FUTA = $600 × 20 employees × 0.6% = $72
FICA—Social security taxes = $3,968 (same as employees)
FICA—Medicare Taxes = $928 (same as employees)

Apr. 15
State unemployment taxes payable ($5,120 + $480) = $5,600

Apr. 30
Federal unemployment taxes payable ($768 + $72) = $840

Reference links