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Tyrell Co. entered into the following transactions involving short-term liabilities in 2014 and 2015. 2014 Apr. 20 Purchased $36,000 of merchandise on credit from Locust, terms are 1/10, n/30. Tyrell uses the perpetual inventory system. May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 8% annual interest along with paying $1,000 in cash. July 8 Borrowed $63,000 cash from National Bank by signing a 120-day, 11% interest-bearing note with a face value of $63,000. __?__ Paid the amount due on the note to Locust at the maturity date. __?__ Paid the amount due on the note to National Bank at the maturity date. Nov. 28 Borrowed $33,000 cash from Fargo Bank by signing a 60-day, 7% interest-bearing note with a face value of $33,000. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank. 2015 __?__ Paid the amount due on the note to Fargo Bank at the maturity date. 1. Determine the maturity date for each of the three notes described. Locust Natl. Bank Fargo Maturity Date Aug 17 Nov 5 Jan 27 Explanation Date of note Term of note (in days) Maturity date

Locust May 19 90 Aug 17

Natl. Bank July 8 120 Nov 5

Fargo Nov 28 60 Jan 27

2. Determine the interest due at maturity for each of the three notes. (Do not round your intermediate calculations. Use 360 day year.) Principal x Rate x Time = Interest Locust $35,000 x 8% x 90/360 = $700 National Bank $63,000 x 11% x 120/360 = $2,310 Fargo Bank $33,000 x 7% x 60/360 = $385 Explanation: Interest due at maturity Principal of the note Annual interest rate Fraction of year Interest expense

Locust $35,000 8% 90/360 $700

Natl. Bank $63,000 11% 120/360 $2,310

Fargo $33,000 7% 60/360 $385

3. Determine the interest expense to be recorded in the adjusting entry at the end of 2014. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar. Use 360 days a year.) Year-end accrual required for:Fargo Bank Principal x Rate x Time = Interest Interest to be accrued in 2014 $33,000 x 7% x 33/360 = $212 Explanation: Accrued interest on Fargo note at the end of 2014 Total interest for note $ 385 Fraction of term in 2014 x 33/60 Accrued interest expense $ 212

5.1 Prepare journal entries for all the preceding transactions and events for years 2014. (Do not round your intermediate calculations.) Date Apr 20, 2014 May 19, 2014

Jul 08, 2014 Aug 17, 2014

Nov 05, 2014

Nov 28, 2014 Dec 31, 2014

General Journal Merchandise inventory Accounts payable—Locust Accounts payable—Locust Cash Notes payable—Locust Cash Notes payable—National Bank Interest expense Notes payable—Locust Cash Interest expense Notes payable—National Bank Cash Cash Notes payable—Fargo Bank Interest expense Interest payable

Debit 36,000

Credit 36,000

36,000 1,000 35,000 63,000 63,000 700 35,000 35,700 2,310 63,000 65,310 33,000 33,000 212 212

5.2 Prepare journal entries for all the preceding transactions and events for years 2015. (Do not round your intermediate calculations.) Date General Journal Debit Credit Jan 27, 2015 Interest expense 173 Notes payable—Fargo bank 33,000 Interest payable 212 Cash 33,385 On January 8, the end of the first weekly pay period of the year, Regis Company's payroll register showed that its employees earned $26,760 of office salaries and $70,840 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.20%, FICA

Medicare taxes at the rate of 1.45%, $13,260 of federal income taxes, $1,320 of medical insurance deductions, and $800 of union dues. No employee earned more than $7,000 in this first period. 1.1 Calculate below the amounts for each of these four taxes of Regis Company. Regis’s merit rating reduces its state unemployment tax rate to 3% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.60%. (Round your answers to 2 decimal places.) Regis Company’s: Tax January 8 earnings subject to tax Tax Rate Tax Amount FICA-Social Security $97,600 6.20% 6,051.20 FICA-Medicare 97,600 1.45% 1,415.20 FUTA 97,600 0.60% 585.60 SUTA 97,600 3.00% 2,928.00 1.2 Prepare the journal entry to record Regis Company's January 8 (employee) payroll expenses and liabilities. (Round answers to 2 decimal places.) Date General Journal Debit Credit Jan 08 Office salaries expense 26,760.00 Sales salaries expense 70,840.00 FICA—Social sec. taxes payable 6,051.20 FICA—Medicare taxes payable 1,415.20 Employee fed. inc. taxes payable 13,260.00 Employee medical insurance payable 1,320.00 Employee union dues payable 800.00 Salaries payable 74,753.60 Explanation: To record payroll for period. FICA – Social sec. taxes payable = 97600 x 6.20% = 6051.20 FICA – Medicare taxes payable = 97600 x 1.45% = 1415.20

2. Prepare the journal entry to record Regis’s (employer) payroll taxes resulting from the January 8 payroll. Regis’s merit rating reduces its state unemployment tax rate to 3% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.60%. (Round answers to 2 decimal places.) Date General Journal Debit Credit Jan 08 Payroll taxes expense 10,980.00 FICA—Social sec. taxes payable 6,051.20 FICA—Medicare taxes payable 1,415.20 State unemployment taxes payable 2,928.00 Federal unemployment taxes payable 585.60 Explanation: To record employer payroll taxes. State unemployment taxes payable = $97,600 × 0.03 = $2,928.00 Federal unemployment taxes payable = $97,600 × 0.006 = $585.60

Paloma Co. Stars has four employees. FICA Social Security taxes are 6.2% of the first $117,000 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 .6% and SUTA taxes are 6.20%. 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 Dahlia Trey Kiesha Chee

Gross Pay through Aug. 18 $ 116,300 116,500 7,500 1,450

Gross Pay $ 2,200 500 490 440

Income Tax Withholding $ 312 81 42 33

In addition to gross pay, the company must pay one-half of the $68 per employee weekly health insurance; each employee pays the remaining onehalf. The company also contributes an extra 8% of each employee’s gross pay (at no cost to employees) to a pension fund.

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 Dahlia $700.00 (117000 – 116300) Trey 500.00 (117000-116500) Kiesha 490.00

Tax Rate 6.20% 6.20% 6.20%

Tax Amount 43.40 31.00 30.38

Chee

440.00

2) Employees' FICA Withholdings for Medicare Employee Earnings Subject to Tax (gross pay) Dahlia $2,200.00 Trey 500.00 Kiesha 490.00 Chee 440.00 3) Employer's FICA Taxes for Social Security Employee Earnings Subject to Tax (copy #1 data) Dahlia $700.00 Trey 500.00 Kiesha 490.00 Chee 440.00 4) Employer's FICA Taxes for Medicare Employee Earnings Subject to Tax (copy #2 data) Dahlia $2,200.00 Trey 500.00 Kiesha 490.00 Chee 440.00 5) Employer's FUTA Taxes Employee Dahlia Trey Kiesha Chee 6) Employer's SUTA Taxes Employee Dahlia Trey Kiesha Chee

Earnings Subject to Tax

440.00

Earnings Subject to Tax

440.00

7) Each Employee's Net (take-home) Pay Employee Dahlia Gross Pay $2,200.00 Income tax withholding 312.00 FICA - Social Security 43.40 FICA - Medicare 31.90 Health Insurance 34.00 Net Pay $1,778.70 8) Total Payroll Related Expense for Each Employee Employee Dahlia Gross Pay $2,200.00 FICA - Social Security 43.40 FICA - Medicare 31.90 FUTA 0.00 SUTA 0.00 Health Insurance 34.00 Pension 176.00 Total Payroll Expense $2,485.30

6.20% Total

27.28 $132.06

Tax Rate 1.45% 1.45% 1.45% 1.45% Total

Tax Amount $31.90 7.25 7.11 6.38 $52.64

Tax Rate 6.20% 6.20% 6.20% 6.20% Total

Tax Amount $43.40 31.00 30.38 27.28 $132.06

Tax Rate 1.45% 1.45% 1.45% 1.45% Total

Tax Amount $31.90 7.25 7.11 6.38 $52.64

Tax Rate 0.60% 0.60% 0.60% 0.60% Total

Tax Amount

$2.64 $2.64

Tax Rate 6.20% 6.20% 6.20% 6.20% Total

Tax Amount

$27.28 $27.28

Trey $500.00 81.00 31.00 7.25 34.00 $346.75

Kiesha $490.00 42.00 30.38 7.11 34.00 $376.51

Chee $440.00 33.00 27.28 6.38 34.00 $339.34

Total $3,630.00 468.00 132.06 52.64 136.00 $2,841.30

Trey $500.00 31.00 7.25 0.00 0.00 34.00 40.00 $612.25

Kiesha $490.00 30.38 7.11 0.00 0.00 34.00 39.20 $600.69

Chee $440.00 27.28 6.38 2.64 27.28 34.00 35.20 $572.78

Total $3,630.00 132.06 52.64 2.64 27.28 136.00 290.40 $4,271.02

On October 29, 2014, Lobo Co. began operations by purchasing razors for resale. Lobo uses the perpetual inventory method. The razors have a 90day warranty that requires the company to replace any nonworking razor. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new razor is $15 and its retail selling price is $80 in both 2014 and 2015. The manufacturer has advised the company to expect warranty costs to equal 6% of dollar sales. The following transactions and events occurred. 2014 Nov. 11 Sold 80 razors for $6,400 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 09 Replaced 16 razors that were returned under the warranty. 16 Sold 240 razors for $19,200 cash. 29 Replaced 32 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. 2015 Jan. 05 Sold 160 razors for $12,800 cash.

17 31

Replaced 37 razors that were returned under the warranty. Recognized warranty expense related to January sales with an adjusting entry.

1.1 Prepare journal entries to record these transactions and adjustments for 2014. Date General Journal Nov 11 Cash Sales Nov 11 Cost of goods sold Merchandise inventory Nov 30 Warranty expense Estimated warranty liability Dec 09 Estimated warranty liability Merchandise inventory Dec 16 Cash Sales Dec 16 Cost of goods sold Merchandise inventory Dec 29 Estimated warranty liability Merchandise inventory Dec 31 Warranty expense Estimated warranty liability Explanation: Nov. 11, 2014 To record cost of November 11 sale (80 × $15) = $1,200 Nov. 30, 2014 To record razor warranty expense and liability at 6% of selling price = $384 Dec. 09, 2014 To record cost of razor warranty replacements (16 × $15) = $240 Dec. 16, 2014 To record cost of December 16 sale (240 × $15) = $3,600 Dec. 29, 2014 To record cost of razor warranty replacements (32 × $15) = $480 Dec. 31, 2014 To record razor warranty expense and liability at 6% of selling price = $1,152 1.2 Prepare journal entries to record these transactions and adjustments for 2015. Date General Journal Jan 05 Cash Sales Jan 05 Cost of goods sold Merchandise inventory Jan 17 Estimated warranty liability Merchandise inventory Jan 31 Warranty expense Estimated warranty liability Explanation: Jan. 05, 2015 To record cost of January 5 sale (160 × $15) = $2,400 Jan. 17, 2015 To record cost of razor warranty replacements (37 × $15) = $555 Jan. 31, 2015 To record razor warranty expense and liability at 6% of selling price = $768

Debit 6,400

6,400 1,200 1,200 384 384 240 240 19,200 19,200 3,600 3,600 480 480 1,152

Debit 12,800

1,152

Credit 12,800

2,400 2,400 555 555 768

2. How much warranty expense is reported for November 2014 and for December 2014?

Warranty expense for November 2014 384 Warranty expanse for December 2014 1152 Explanation Warranty expense for November 2014 and December 2014 Sales Percent Warranty expense November 6400 x 0.06 = 384 December +19200 x 0.06 = + 1152 Total 25600 1536

3. How much warranty expense is reported for January 2015? Warranty expense 768 Explanation Warranty expense for January 2015 Sales in January 12800 Warranty percent / 0.06 Warranty expense 768

4. What is the balance of the Estimated Warranty Liability account as of December 31, 2014? Estimated warranty liability balance 816 Explanation: Balance of the estimated liability as of December 31, 2014 Warranty expense for November 384 Warranty expense for December +1152 Cost of replacing items in December (48 x 15) -720 Estimate warranty liability balance 816

Credit

768

5. What is the balance of the Estimated Warranty Liability account as of January 31, 2015? Estimated warranty liability balance 1029 Explanation: Balance of the estimated liability as of January 31, 2015 Beginning balance 816 Warranty expense for January +768 Cost of replacing items in January (37 x 15) -555 Estimated warranty liability balance 1029 Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes). Miller Company Sales Variable expenses (80%) Income before interest Interest expense (fixed) Net income

Weaver Company 1,300,000 1,040,000 260,000 66,000 194000

Sales Variable expenses (60%) Income before interest Interest expense (fixed) Net imcome

1,300,000 780,000 520,000 326,000 194,000

1. Compute times interest earned for Miller Company. Choose Numerator: Income before interest & taxes $260,000 Explanation

/ / /

Miller Company: Income before interest & taxes

$260,000 =

Interest expense

Times interest earned for Miller Company Choose Denominator: Interest expense $66,000

= 3.94 $66,000

= = =

Times interest earned Times interest earned 3.94...