Financial Accounting Questions and Answers

Commerical Cleaning Services, LLC, provides cleaning services for office buildings. The firm has 10 members in the LLC, which did not change between 2012 and 2013. During 2013, the business terminated two commercial contracts. The following revenue and employee information is provided: 2013 2012 Revenues (in thousands) $20,000 $22,400 Number of employees (excluding members) 160 200  a. For 2013 and 2012, determine the revenue per employee (excluding members). b. Interpret the trend between the two years. Answer: a.    Revenue per employee, 2013:  160 000,000,20$  = $125,000   Revenue per employee, 2012:  200 000,400,22$  = $112,000  b. Revenues decreased between the two years; however, the number of employees has decreased at a faster rate. Thus, the revenue per employee increased from $112,000 in 2012 to $125,000 in 2013. This indicates that the efficiency of the firm has increased in the two years, even though revenues declined. This i...

The accounting firm of Deloitte & Touche is the largest international accounting firm in the world as ranked by total revenues. For the last two years, Deloitte & Touche reported the following for its U.S. operations: 2009 2008 Revenue (in billions) $26.1 $27.4 Number of professional staff  (including partners) 139,760 133,100  a. For 2009 and 2008, determine the revenue per professional staff. Round to the nearest thousand dollars. b. Interpret the trend between the two years. Answer: a.    Revenue per professional staff, 2009:  760,139 000,000,100,26$  = $187,000 rounded    Revenue per professional staff, 2008:  100,133 000,000,400,27$  = $206,000 rounded   b. The revenues declined between the two years from $27.4 billion to $26.1 billion, or 4.7% [($26.1 – $27.4)/$27.4]. Revenues have declined, mostly due to the worldwide recession during this period. The number of employees has grown, from 133,100 to 139,760, or 5% [(139...

The capital accounts of Gary Menendez and Melissa Breeden have balances of $75,000 and $55,000, respectively, on January 1, 2012, the beginning of the current fiscal year. On April 10, Menendez invested an additional $12,000. During the year, Menendez and Breeden withdrew $44,000 and $35,000, respectively, and net income for the year was $92,000. The articles of partnership make no reference to the division of net income. a. Journalize the entries to close (1) the income summary account and (2) the drawing accounts. b. Prepare a statement of partners’ equity for the current year for the partnership of Menendez and Breeden. Answer: a. (1) Income Summary.................................................... 92,000    Gary Menendez, Capital....................................  46,000    Melissa Breeden, Capital..................................  46,000    (2) Gary Menendez, Capital ......................................... 44,000   Melissa Breeden...

Hall, Lang, and Das are members of Evergreen Sales, LLC, sharing income and losses in the ratio of 2:2:1, respectively. The members decide to liquidate the limited liability company. The members’ equity prior to liquidation and asset realization on May 1, 2012, are as follows: Hall             $37,000 Lang              40,000 Das               18,000 Total            $95,000 In winding up operations during the month of May, noncash assets with a book value of $107,000 are sold for $123,000, and liabilities of $25,000 are satisfied. Prior to realization, Evergreen Sales has a cash balance of $13,000. a. Prepare a statement of LLC liquidation. b. Provide the journal entry for the final cash distribution to members. c. What is the role of the income- and loss-sharing ratio in liquidating a LLC? Answer: EVERGREEN SALES, LLC Statement of LLC Liquidation For the Pe...

After closing the accounts on July 1, prior to liquidating the partnership, the capital account balances of Jessup, King, and Oliver are $70,000, $43,000, and $22,000, respectively. Cash, noncash assets, and liabilities total $62,000, $108,000, and $35,000, respectively. Between July 1 and July 29, the noncash assets are sold for $90,000, the liabilities are paid, and the remaining cash is distributed to the partners. The partners share net income and loss in the ratio of 3:2:1. Prepare a statement of partnership liquidation for the period July 1–29, 2012. Answer: JESSUP, KING, AND OLIVER Statement of Partnership Liquidation For the Period Ending July 1–29, 2012   Capital   Noncash Jessup King  Oliver Cash + Assets = Liabilities + (3/6) + (2/6) + (1/6)   Balances before realization............. $ 62,000 $108,000 $ 35,000 $ 70,000 $ 43,000 $ 22,000 Sale of assets and division  of loss............................................ + 90,000 –108,000   — – 9,000 ...

Arnold, Peters, and Suzuki are partners sharing income 3:2:1. After the firm’s loss from liquidation is distributed, the capital account balances were: Arnold, $18,000 Dr.; Peters, $75,000 Cr.; and Suzuki, $55,000 Cr. If Arnold is personally bankrupt and unable to pay any of the $18,000, what will be the amount of cash received by Peters and Suzuki upon liquidation? Answer:   Arnold   Peters   Suzuki   Capital balances after realization.............. $(18,000) $ 75,000 $55,000 Distribution of partner deficiency.............  18,000  (12,000)1  (6,000)2 Capital balances after deficiency  distribution........................................... $ 0 $ 63,000 $49,000  1$18,000 × 2/3 2$18,000 × 1/3  

Deacon, Raines, and Francis arranged to import and sell orchid corsages for a university dance. They agreed to share equally the net income or net loss of the venture. Deacon and Raines advanced $300 and $450 of their own respective funds to pay for advertising and other expenses. After collecting for all sales and paying creditors, the partnership has $1,800 in cash. a. How should the money be distributed? b. Assuming that the partnership has only $600 instead of $1,800, do any of the three partners have a capital deficiency? If so, how much? Answer: a. Cash should be distributed as indicated in the following tabulation:    Deacon Raines Francis  Total  Capital invested................................ $ 300 $ 450 $ — $ 750 Net income........................................ +  350 + 350 + 350 +1,050* Capital balances and cash distribution.................................... $ 650 $ 800 $ 350 $1,800   *$1,800 – $300 – $450   b. Francis has a capital def...

Daniel Mason and Srini Kumar, with capital balances of $34,000 and $36,000, respectively, decide to liquidate their partnership. After selling the noncash assets and paying the liabilities, there is $82,000 of cash remaining. If the partners share income and losses equally, how should the cash be distributed? Answer: Mason Kumar  Total   Capital balances before realization .............. $34,000 $36,000 $70,000 Division of gain on sale of noncash assets  [($82,000 – $70,000)/2]..............................  6,000  6,000 Capital balances after realization.................. $40,000 $42,000 Cash distributed to partners.........................  40,000  42,000 Final balances ................................................ $ 0 $ 0 

Gifford, Lawrence, and Ma share equally in net income and net losses. After the partnership sells all assets for cash, divides the losses on realization, and pays the liabilities, the balances in the capital accounts are as follows: Gifford, $32,000 Cr.; Lawrence, $62,500 Cr.; Ma, $15,000 Dr. a. What term is applied to the debit balance in Ma’s capital account? b. What is the amount of cash on hand? c. Journalize the transaction that must take place for Gifford and Lawrence to receive cash in the liquidation process equal to their capital account balances. Answer: a. Deficiency   b. $79,500 ($32,000 + $62,500 – $15,000)   c. Cash...............................................................................  15,000 Ma, Capital................................................................    15,000   Support for entry:   Gifford  Lawrence  Ma    Capital balances after realization....... $32,000 $62,500 $(15,000) Dr.  Receipt o...

Lyle and Fisher are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are $15,000 and $7,000, respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $16,000. a. What is the amount of a gain or loss on realization? b. How should the gain or loss be divided between Lyle and Fisher? c. How should the cash be divided between Lyle and Fisher? Answer: a.    Cash balance ................................................. $16,000  Sum of capital accounts...............................  22,000  Loss from sale of noncash assets............... $ 6,000    b. and c.  Lyle  Fisher   Capital balances before realization.............. $15,000 $7,000  Division of loss on sale of noncash assets   3,000*  3,000*  Balances......................................................... $12,000 $4,000  Cash dist...

The statement of members’ equity for Bonanza, LLC, is shown below. Bonanza, LLC Statement of Members’ Equity For the Years Ended December 31, 2012 and 2013 Idaho Properties, LLC, Member Equity Silver Holdings, LLC, Member Equity Justin Thomas Member Equity Total Members’ Equity Members’ equity, December 31, 2011 $552,000 $420,500 $    972,500 Net income   128,000   192,000      320,000 Members’ equity, December 31, 2012 $680,000 $612,500 $1,292,500 Thomas contribution, January 1, 2013 8,000 12,000 $250,000 270,000 Net income 90,000 225,000 135,000 450,000 Less member withdrawals (32,000) (48,000) (50,000) (130,000) Members’ equity, December 31, 2013 $746,000 $801,500 $335,000 $1,882,500 a. What was the income-sharing ratio in 2012? b. What was the income-sharing ratio in 2013? c. How much cash did Justin Thomas contribute to Bonanza, LLC, for his interest? d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Holdings, LLC, have pos...

David Winner is to retire from the partnership of Winner and Associates as of March 31, the end of the current fiscal year. After closing the accounts, the capital balances of the partners are as follows: David Winner, $210,000; Alexis Richards, $125,000; and Marcus Williams, $140,000. They have shared net income and net losses in the ratio of 3:2:2. The partners agree that the merchandise inventory should be increased by $32,000, and the allowance for doubtful accounts should be increased by $4,000. Winner agrees to accept a note for $150,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Richards and Williams are to share equally in the net income or net loss of the new partnership. Journalize the entries to record (a) the adjustment of the assets to bring them into agreement with current market prices and (b) the withdrawal of Winner from the partnership. Answer: a. Merchandise Inventory..................................................

The partnership of Angel Investor Associates began operations on January 1, 2012, with contributions from two partners as follows: Scott Wilson                  $120,000 Michael Goforth                 80,000 The following additional partner transactions took place during the year: 1. In early January, Lance McGinnis is admitted to the partnership by contributing $50,000 cash for a 20% interest. 2. Net income of $250,000 was earned in 2012. In addition, Scott Wilson received a salary allowance of $45,000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting McGinnis. 3. The partners’ withdrawals are equal to half of the increase in their capital balances from salary allowance and income. Prepare a statement of partnership equity for the year ended December 31, 2012. Answer: A NGEL INVESTOR ASSOCIATES Statement of Partnership Equity For the Year...

J. Witt and K. Torres are partners in Whole Earth Consultants. Witt and Torres share income equally. L. Jenkins will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $12,000. The capital balances of each partner are $106,000 and $141,000, respectively, prior to the revaluation. a. Provide the journal entry for the asset revaluation. b. Provide the journal entry for Jenkins’ admission under the following independent situations: 1. Jenkins purchased a 20% interest for $45,000. 2. Jenkins purchased a 30% interest for $135,000. Answer: a. J. Witt, Capital........................................................... 6,000  K. Torres, Capital...................................................... 6,000   Equipment............................................................  12,000   b. (1) Cash.................................................................... 45,000   J. Witt, Capital...............................................

HealthSource, LLC, consists of two doctors, Drew and Moore, who share in all income and losses according to a 2:3 income-sharing ratio. Dr. Mann has been asked to join the LLC. Prior to admitting Mann, the assets of HealthSource were revalued to reflect their current market values. The revaluation resulted in medical equipment being increased by $35,000. Prior to the revaluation, the equity balances for Drew and Moore were $201,000 and $289,000, respectively. a. Provide the journal entry for the asset revaluation. b. Provide the journal entry for the bonus under the following independent situations: 1. Mann purchased a 30% interest in HealthSource, LLC, for $285,000. 2. Mann purchased a 25% interest in HealthSource, LLC, for $155,000. Answer: a. Medical Equipment........................................................ 35,000   Drew, Member Equity...............................................  14,0001   Moore, Member Equity............................................. ...

Andrew Hall and Brian Li formed a partnership to provide landscaping services. Hall and Li shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Andrew Hall and Brian Li have balances of $54,000 and $71,000, respectively. Kristin Lane has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Hall and Li deem these skills useful; thus, Lane is admitted to the partnership at a 30% interest for a purchase price of $35,000. a. Determine the recipient and amount of the partner bonus. b. Provide the journal entry to admit Lane into the partnership. c. Why would a bonus be paid in this situation? Answer: a. Bonus received by Lane:  Andrew Hall, Capital...................................................... $ 54,000  Brian Li, Capital.............................................................  71,000  Lane’s contribution.....................................

After the tangible assets have been adjusted to current market prices, the capital accounts of Brandon Newman and Latrell Osbourne have balances of $75,000 and $125,000, respectively. Juan Rivas is to be admitted to the partnership, contributing $50,000 cash to the partnership, for which he is to receive an ownership equity of $65,000. All partners share equally in income. a. Journalize the entry to record the admission of Rivas, who is to receive a bonus of $15,000. b. What are the capital balances of each partner after the admission of the new partner? c. Why are tangible assets adjusted to current market prices, prior to admitting a new partner? Answer: a. Cash................................................................................  50,000 Brandon Newman, Capital............................................  7,500 Latrell Osbourne, Capital..............................................  7,500 Juan Rivas, Capital.................................................. ...

The capital accounts of Jonathan Faber and Faheem Ahmad have balances of $150,000 and $110,000, respectively. Lauren Wells and Rachel Lee are to be admitted to the partnership. Wells buys one-fifth of Faber’s interest for $35,000 and one-fourth of Ahmad’s interest for $25,000. Lee contributes $70,000 cash to the partnership, for which she is to receive an ownership equity of $70,000. a. Journalize the entries to record the admission of (1) Wells and (2) Lee. b. What are the capital balances of each partner after the admission of the new partners? Answer: a. (1) Jonathan Faber, Capital (20% × $150,000)............  30,000 Faheem Ahmad, Capital (25% × $110,000)............  27,500 Lauren Wells, Capital........................................    57,500  (2) Cash.........................................................................  70,000 Rachel Lee, Capital............................................    70,000   b. Jonathan Faber ($150,000 –...

Lily Yuan and Kayla Dunn are partners who share in the income equally and have capital balances of $180,000 and $62,500, respectively. Yuan, with the consent of Dunn, sells one-third of her interest to Rachel Burnett. What entry is required by the partnership if the sales price is (a) $40,000? (b) $80,000? Answer: a. and b. Lily Yuan, Capital.......................................  60,000 Rachel Burnett, Capital............................................    60,000 $180,000 × 1/3.

The notes to the annual report for KPMG LLP (U.K.) indicated the following policies regarding the partners’ capital: The allocation of profi ts to those who were partners during the fi nancial year occurs following the fi nalization of the annual fi nancial statements. During the year, partners receive monthly drawings and, from time to time, additional profi t distributions. Both the monthly drawings and profi t distributions represent payments on account of current-year profi ts and are reclaimable from partners until profi ts have been allocated. Assume that the partners draw £40 million per month for 2012 and the net income for the year is £600 million. Journalize the partner capital and partner drawing control accounts in the following requirements: a. Provide the journal entry for the monthly partner drawing for January. b. Provide the journal entry to close the income summary account at the end of the year. c. Provide the journal entry to close the drawing account at the end of the year...

Macro Media, LLC, has three members: WLKT Partners, Amanda Nelson, and Daily Sentinel Newspaper, LLC. On January 1, 2012, the three members had equity of $250,000, $50,000, and $140,000, respectively. WLKT Partners contributed an additional $50,000 to Macro Media, LLC, on June 1, 2012. Amanda Nelson received an annual salary allowance of $88,700 during 2012. The members’ equity accounts are also credited with 10% interest on each member’s January 1 capital balance. Any remaining income is to be shared in the ratio of 4:3:3 among the three members. The net income for Macro Media, LLC, for 2012 was $720,000. Amounts equal to the salary and interest allowances were withdrawn by the members. a. Determine the division of income among the three members. b. Prepare the journal entry to close the net income and withdrawals to the individual member equity accounts. c. Prepare a statement of members’ equity for 2012. d. What are the advantages of an income-sharing agreement for the members of th...

Joshua Richards and Taylor Clark formed a limited liability company with an operating agreement that provided a salary allowance of $60,000 and $50,000 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:2. The two members withdrew amounts equal to their salary allowances. a. Determine the division of $152,000 net income for the year. b. Provide journal entries to close the (1) income summary and (2) drawing accounts for the two members. c. If the net income were less than the sum of the salary allowances, how would income be divided between the two members of the LLC? Answer: a. Net income: $152,000  Richards  Clark   Total    Salary allowance...................................... $60,000 $50,000 $110,000  Remaining income...................................  25,200  16,800  42,000  Net income............................................... $85,200 $66,800 $152,000   Richards rema...

Ashley Adams and Michael Rovell formed a partnership in which the partnership agreement provided for salary allowances of $45,000 and $35,000, respectively. Determine the division of a $30,000 net loss for the current year. Answer: Ashley Michael   Adams   Rovell   Total   Salary allowances.......................................... $ 45,000 $ 35,000 $ 80,000 Remainder (net loss, $30,000 plus $80,000  salary allowances) divided equally .........  (55,000)  (55,000)  (110,000) Net loss........................................................... $(10,000) $(20,000) $ (30,000) 

Sixty-year-old Mary Filmore retired from her computer consulting business in Boston and moved to Florida. There she met 27-year-old Emily Wright, who had just graduated from Eldon Community College with an associate degree in computer science. Mary and Emily formed a partnership called F&W Computer Consultants. Mary contributed $35,000 for startup costs and devoted one-half time to the business. Emily devoted full time to the business. The monthly drawings were $2,000 for Mary and $4,000 for Emily. At the end of the first year of operations, the two partners disagreed on the division of net income. Mary reasoned that the division should be equal. Although she devoted only one-half time to the business, she contributed all of the startup funds. Emily reasoned that the income-sharing ratio should be 2:1 in her favor because she devoted full time to the business and her monthly drawings were twice those of Mary. a. Can you identify any flaws in the partners’ reasoning regarding the in...

Determine the income participation of Wyatt and Truett, according to each of the five assumptions as to income division listed in Exercise 12-3 if the year’s net income is $160,000. Answer:   Wyatt   Truett   a. ........................................................................................ $ 80,000 $80,000 b. ........................................................................................  120,000  40,000 c. ........................................................................................  76,320  83,680 d. ........................................................................................  70,000  90,000 e. ........................................................................................  78,800  81,200   Details     Wyatt   Truett   Total   a. Net income (1:1)............................................... $80,000 $80,000 $160,000    b. Net income (3:1).....

Jessica Kimble and Carlos Segura form a partnership by combining assets of their former businesses. The following balance sheet information is provided by Kimble, sole proprietorship: Cash $ 50,000 Accounts receivable $100,000 Less: Allowance for doubtful accounts       5,900 94,100 Land 180,000 Equipment $ 70,000 Less: Accumulated depreciation—equipment     43,000 27,000 Total assets $351,100 Accounts payable $ 22,500 Notes payable 80,000 Jessica Kimble, capital 248,600 Total liabilities and owner’s equity $351,100 Kimble obtained appraised values for the land and equipment as follows: Land $284,000 Equipment 19,000  An analysis of the accounts receivable indicated that the allowance for doubtful accounts should be increased to $7,000. Journalize the partnership’s entry for Kimble’s investment. Answer: Cash ..................................................................................... 50,000 Accounts Receivable..........................................

Jennifer Wyatt and Megan Truett formed a partnership, investing $330,000 and $110,000, respectively. Determine their participation in the year’s net income of $420,000 under each of the following independent assumptions: (a) no agreement concerning division of net income; (b) divided in the ratio of original capital investment; (c) interest at the rate of 8% allowed on original investments and the remainder divided in the ratio of 2:3; (d) salary allowances of $50,000 and $70,000, respectively, and the balance divided equally; (e) allowance of interest at the rate of 8% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally. Answer:  Wyatt   Truett   a. ........................................................................................ $ 210,000 $210,000 b. ........................................................................................  315,000  105,000 c. ....................................

Amber Moss and Latoya Pell decide to form a partnership by combining the assets of their separate businesses. Moss contributes the following assets to the partnership: cash, $15,000; accounts receivable with a face amount of $159,000 and an allowance for doubtful accounts of $9,700; merchandise inventory with a cost of $100,000; and equipment with a cost of $155,000 and accumulated depreciation of $100,000. The partners agree that $6,000 of the accounts receivable are completely worthless and are not to be accepted by the partnership, that $11,400 is a reasonable allowance for the uncollectibility of the remaining accounts, that the merchandise inventory is to be recorded at the current market price of $91,450, and that the equipment is to be valued at $62,500. Journalize the partnership’s entry to record Moss’s investment. Answer: Cash ..................................................................................... 15,000 Accounts Receivable..........................................

The current assets and current liabilities for Apple Computer, Inc., and Dell Inc. are shown as follows at the end of a recent fiscal period: Apple Computer, Inc. (in millions) Sept. 26, 2009 Dell Inc. (in millions) Jan. 29, 2010 Current assets: Cash and cash equivalents $ 5,263 $10,635 Short-term investments 18,201 373 Accounts receivable 4,496 8,543 Inventories 455 1,051 Other current assets* 3,140 3,643 Total current assets $31,555 $24,245 Current liabilities: Accounts payable $   9,453 $15,257 Accrued and other current liabilities 2,053 3,703 Total current liabilities $11,506 $18,960 *These represent prepaid expense and other nonquick current assets. a. Determine the quick ratio for both companies. b. Interpret the quick ratio difference between the two companies. Answer: a.    Apple Computer, Inc. Dell Inc. Quick Ratio 2.4 1.0    Quick Ratio =  sLiabilitie Current Assets Quick     Apple Computer, Inc.:    Quick Ratio =  50...

CCB Co. had the following current assets and liabilities for two comparative years: Dec. 31, 2012 Dec. 31, 2011 Current assets: Cash $ 506,000 $  524,000 Accounts receivable 354,000 364,000 Inventory 240,000 200,000 Total current assets $1,100,000 $1,088,000 Current liabilities: Current portion of long-term debt $  160,000 $ 120,000 Accounts payable 265,000 220,000 Accrued and other current liabilities 435,000 400,000 Total current liabilities $  860,000 $ 740,000 a. Determine the quick ratio for December 31, 2012 and 2011. b. Interpret the change in the quick ratio between the two balance sheet dates. Answer: a. Quick Ratio =  sLiabilitie Current Assets Quick     December 31, 2011:  $740,000 $364,000+$524,000  = 1.2     December 31, 2012:  $860,000 $354,000+$506,000  = 1.0    b. The quick ratio decreased between the two balance sheet dates. The major reason is a significant increase in inventory which likel...

General Motors Corporation disclosed estimated product warranty payable for comparative years as follows: (in millions) 12/31/08 12/31/07 Current estimated product warranty payable $3,792 $4,655 Noncurrent estimated product warranty payable 4,699 4,960 Total $8,491 $9,615 GM’s sales were $177,594 million in 2007 and decreased to $147,732 million in 2008. Assume that the total paid on warranty claims during 2008 was $5,000 million. a. Why are short- and long-term estimated warranty liabilities separately  disclosed? b. Provide the journal entry for the 2008 product warranty expense. c. What two conditions must be met in order for a product warranty liability to be reported in the financial statements? Answer: a. The warranty liability represents estimated outstanding automobile warranty claims. Of these claims, $3,792 million is estimated to be due during 2009, while the remainder ($4,699 million) is expected to be paid after 2009. The distinction between short- and long-term liabil...

Several months ago, Reiltz Industries, Inc. experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $570,000. The company is contesting the fine. In addition, an employee is seeking $560,000 in damages related to the spill. Lastly, a homeowner has sued the company for $364,000. The homeowner lives 35 miles from the plant, but believes that the incident has reduced the home’s resale value by $364,000. Reiltz’s legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $238,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner’s case is much weaker and will be decided in favor of Reiltz. Other litigation related to the spill is possible, but the damage amounts are uncertain. a. Journalize the contingent liabilities associated with the hazardous materials spil...

Parker Products Co. warrants its products for one year. The estimated product warranty is 3% of sales. Assume that sales were $442,000 for September. In October, a customer received warranty repairs requiring $110 of parts and $86 of labor. a. Journalize the adjusting entry required at September 30, the end of the first month of the current fiscal year, to record the accrued product warranty. b. Journalize the entry to record the warranty work provided in October. Answer: a. Product Warranty Expense........................................... 13,260   Product Warranty Payable.......................................  13,260    To record warranty expense for June,  3% × $442,000.  b. Product Warranty Payable............................................ 196   Supplies....................................................................  110   Wages Payable.........................................................  86 

Wren Co. operates a chain of gift shops. The company maintains a defined contribution pension plan for its employees. The plan requires quarterly installments to be paid to the funding agent, Whims Funds, by the fifteenth of the month following the end of each quarter. Assume that the pension cost is $141,500 for the quarter ended March 31. a. Journalize the entries to record the accrued pension liability on March 31 and the payment to the funding agent on April 15. b. How does a defined contribution plan differ from a defined benefit plan? Answer: a. Mar. 31 Pension Expense........................................... 141,500     Unfunded Pension Liability......................  141,500      To record quarterly pension cost.    Apr. 15 Unfunded Pension Liability.......................... 141,500     Cash............................................................  141,500   b. In a defined contribution plan, the company invests ...

In a recent year’s financial statements, Procter & Gamble showed an unfunded pension liability of $3,706 million and a periodic pension cost of $341 million. Explain the meaning of the $3,706 million unfunded pension liability and the $341 million periodic pension cost. Answer: The $3,706 million unfunded pension liability is the approximate amount of the pension obligation that exceeds the value of the accumulated net assets of the pension plan. Apparently, Procter & Gamble has underfunded its plan relative to the actuarial obligation that has accrued over time. This can occur when the company contributes less to the plan than the annual pension cost.  The obligation grows yearly by the amount of the periodic pension cost. Thus, the periodic pension cost is an actuarial measure of the amount of pension earned by employees during the year. The annual pension cost is determined by making actuarial assumptions about employee life expectancies, employee turnover, expected comp...

Matt’s Bikes is a small manufacturer of specialty bicycles. The company employs 18 production workers and four administrative persons. The following procedures are used to process the company’s weekly payroll: a. Whenever an employee receives a pay raise, the supervisor must fill out a wage adjustment form, which is signed by the company president. This form is used to change the employee’s wage rate in the payroll system. b. All employees are required to record their hours worked by clocking in and out on a time clock. Employees must clock out for lunch break. Due to congestion around the time clock area at lunch time, management has not objected to having one employee clock in and out for an entire department. c. Whenever a salaried employee is terminated, Personnel authorizes Payroll to remove the employee from the payroll system. However, this procedure is not required when an hourly worker is terminated. Hourly employees only receive a paycheck if their time cards show hours worke...

A business provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year’s vacation pay is $61,200. a. Journalize the adjusting entry required on January 31, the end of the first month of the current year, to record the accrued vacation pay. b. How is the vacation pay reported on the company’s balance sheet? When is this amount removed from the company’s balance sheet? Answer: a. Vacation Pay Expense ....................... 5,100 Vacation Pay Payable.................................  5,100 Vacation pay accrued for January, $61,200 × 1/12. b. Vacation pay is reported as a current liability on the balance sheet. If employees are allowed to accumulate their vacation pay, then the estimated  vacation pay that will not be taken in the current year will be reported as a long-term liability. When employees take vacations, the liability for vacation pay is decreased.

Faber Company had gross wages of $110,000 during the week ended June 17. The amount of wages subject to social security tax was $110,000, while the amount of wages subject to federal and state unemployment taxes was $15,000. Tax rates are as follows: Social security 6.0% Medicare 1.5% State unemployment 5.4% Federal unemployment 0.8% The total amount withheld from employee wages for federal taxes was $22,000. a. Journalize the entry to record the payroll for the week of June 17. b. Journalize the entry to record the payroll tax expense incurred for the week of June 17. Answer: a. Wages Expense............................................................ 110,000   Social Security Tax Payable ..................................  6,600   Medicare Tax Payable.............................................  1,650   Employees Federal Income Tax Payable..............  22,000   Wages Payable........................................................  79,750 ...

Big Dave’s Pizza is a pizza restaurant specializing in the sale of pizza by the slice. The store employs 10 full-time and 15 part-time workers. The store’s weekly payroll averages $5,600 for all 25 workers. Big Dave’s Pizza uses a personal computer to assist in preparing paychecks. Each week, the store’s accountant collects employee time cards and enters the hours worked into the payroll program. The payroll program calculates each employee’s pay and prints a paycheck. The accountant uses a check-signing machine to sign the paychecks. Next, the restaurant’s owner authorizes the transfer of funds from the restaurant’s regular bank account to the payroll account. For the week of June 11, the accountant accidentally recorded 200 hours worked instead of 40 hours for one of the full-time employees. Does Big Dave’s Pizza have internal controls in place to catch this error? If so, how will this error be detected? Answer: Big Dave’s Pizza does have an internal control procedure that should det...

The payroll register for Robinson Company for the week ended November 18 indicated the following: Salaries $1,300,000 Social security tax withheld 61,100 Medicare tax withheld 19,500 Federal income tax withheld 260,000 In addition, state and federal unemployment taxes were calculated at the rate of 5.2% and 0.8%, respectively, on $240,000 of salaries. a. Journalize the entry to record the payroll for the week of November 18. b. Journalize the entry to record the payroll tax expense incurred for the week of November 18. Answer: a. Salaries Expense.......................................................... 1,300,000   Social Security Tax Payable ..................................  61,100   Medicare Tax Payable.............................................  19,500   Employees Federal Income Tax Payable..............  260,000   Salaries Payable .....................................................  959,400   b. Payroll Tax Expense ....................

According to a summary of the payroll of Brooks Industries Co., $1,100,000 was subject to the 6.0% social security tax and the 1.5% Medicare tax. Also, $50,000 was subject to state and federal unemployment taxes. a. Calculate the employer’s payroll taxes, using the following rates: state unemployment, 4.2%; federal unemployment, 0.8%. b. Journalize the entry to record the accrual of payroll taxes. Answer: a. Social security tax (6% × $1,100,000)...................................... $66,000  Medicare tax (1.5% × $1,100,000) ............................................ 16,500  State unemployment (4.2% × $50,000).................................... 2,100  Federal unemployment (0.8% × $50,000)................................  400   $85,000   b. Payroll Tax Expense .................................................... 85,000   Social Security Tax Payable ..................................  66,000   Medicare Tax Payable................................