Chapter Ten Questions
1. Define the term current liabilities.
Current liabilities are sources of resources that must
be paid within a year.
2. Give three examples of current liabilities.
Notes payable, accounts payable, taxes payable, and
the current portion of long-term debt.
3. What are notes payable?
Notes payable are written promises to pay known
dollar amounts, on specific dates, to the owners of the notes.
4. When notes payable are paid off, what two dollar amounts must be paid?
The dollar amounts to be paid include the amounts
borrowed (principal) and interest.
5. State the formula for calculating interest on a note payable.
Interest = principal x rate x time.
6. If part of the formula used to calculate interest on a note payable contained the fraction 60/365, what would the 365 represent and why is it needed?
The 365 in the interest formula represents the
number of days in a year. It is needed because it is common for interest rates
to be stated on an annual (or 365-day) basis.
7. On which financial statement and in which section of the statement is interest expense reported?
Interest expense in reported on the income statement
in the other revenues and expenses section.
8. What are accounts payable?
Accounts payable are dollar amounts owed to
suppliers for products or services purchased from them. Accounts payable are
current liabilities because they commonly must be paid within 30 days.
9. What is the primary cause of accounts payable for merchandising companies?
Purchases of merchandise inventory on account.
10. What is the major difference between notes payable and accounts payable?
Notes payable and accounts payable are both current
liabilities. The major difference between them relates to interest. If notes
payable are paid on time, interest is part of the required payment. If accounts
payable are paid on time, no interest payment is required.
11. What is a purchases discount?
A purchases discount is a reduction in the amount
that has to be paid to a supplier, resulting from prompt payment. Purchases
discounts are often stated in the form 2/10, n/30, meaning a 2% discount will
be allowed if payment is made within 10 days of the purchase. Full payment is
required within 30 days of the purchase.
12. What are sales taxes payable?
Sales taxes payable are dollar amounts owed to state
governments for certain products or services sold to customers.
13. When a company charges its customers sales taxes and later pays the sales taxes to the state, why doesn’t the company record a sales taxes expense?
Sales taxes are collected from customers and paid to
state governments. Thus, sales taxes are expenses to the customers, not to the
companies selling the products. Such companies are merely acting as collection
agents for the state governments.
14. What are income taxes payable?
Income taxes payable are dollar amounts owed to
governments for services provided by them.
15. Give three examples of services provided by the federal government.
Military protection, work of elected officials, work
of government agencies, such as the IRS, FBI, and CIA.
16. What are deferred taxes and why do they exist?
Deferred taxes are liabilities (usually long-term)
for taxes to be paid sometime in the future. Deferred taxes often exist because
the accounting methods used for financial statement purposes differ from those
followed for tax purposes.
17. What are the two reasons for payroll taxes?
a.) Employers act as governmental collection agents
for certain employee taxes (income and FICA).
b.) Employers are taxed to help fund specific
governmental programs (FICA and unemployment).
18. Identify the two largest costs of merchandising companies.
The cost of goods sold and payroll.
19. Define the term gross pay.
Gross pay is the total dollar amount earned by an
employee during a given time period. Gross pay includes the employee’s
salary or wages, commissions, and bonus.
20. What is the difference between salaries and wages?
Salaries are earnings of employees who receive the
same amount each period, as opposed to wages, which are the earnings of those
employees whose earnings are based on the number of hours they work and their
wage rate per hour.
21. What are payroll deductions?
Payroll deductions are dollar amounts withheld (or
deducted) from employees’ gross pay. These amounts are not paid to employees
but are paid to other entities, such as the federal government.
22. Give three examples of payroll deductions.
Federal income taxes, state income taxes, FICA
taxes, union dues, insurance, contributions, and savings.
23. Identify the two parts of the FICA social security program.
OASDI - old age, survivors, and disability
insurance.
Medicare - health care.
24. Define the term net pay.
Net pay is the dollar amount employees actually
receive from their earnings. Net pay = gross pay - deductions.
25. Identify four payroll taxes levied on employers.
FICA OASDI taxes, FICA Medicare taxes, federal
unemployment taxes, and state unemployment taxes.
26. Identify a difference between FICA taxes and unemployment taxes.
FICA taxes are deducted from employees’
earnings and, also, the employer is taxed the same amount. Unemployment taxes
are usually levied only on employers not employees.
27. On which financial statement are current liabilities reported?
Current liabilities are reported on the balance
sheet.
Chapter Ten Exercises
Exercise 10.1: Notes Payable Interest
The Pappalardo Corporation is considering buying merchandise through the use of notes payable. For each of the three notes payable below, calculate the total interest that the Pappalardo Corporation would pay.
1. $50,000, 8%, 60-day note payable.
Interest = principal x rate x time.
$657.53 = $50,000 x .08 x 60/365.
2. $60,000, 9%, 90-day note payable.
Interest = principal x rate x time.
$1,331.51 = $60,000 x .09 x 90/365.
3. $80,000, 10%, 120-day note payable.
Interest = principal x rate x time.
$2,630.14 = $80,000 x .10 x 120/365.
Exercise 10.2: Notes Payable Journal Entries
The Hartshorn Corporation engaged in several transactions related to notes payable. Prepare journal entries to record the company’s following transactions. Before you prepare each journal entry, determine the transaction’s effects on the company’s resources and sources of resources.
March 17 The company purchased $30,000 of merchandise by issuing a $30,000,
7%, 120-day note.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
+ $30,000 |
= |
+ $30,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
March 17 |
Merchandise Inventory |
|
30,000 |
|
|
|
Notes Payable |
|
|
30,000 |
|
|
Merchandise inventory purchase |
|
|
|
March 31 The company recorded the March interest expense related to the $30,000
note payable.
Interest = principal x rate x time.
$86.30 = $30,000 x .07 x 15/365.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $86.30 |
|
|
+ |
- $86.30 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
March 31 |
Interest Expense |
|
86.30 |
|
|
|
Interest Payable |
|
|
86.30 |
|
|
Interest on $30,000, 7%, 120-day note |
|
|
|
April 30 The company recorded the April interest expense related to the $30,000
note payable.
Interest = principal x rate x time.
$172.60 = $30,000 x .07 x 30/365.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $172.60 |
|
|
+ |
- $172.60 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
April 30 |
Interest Expense |
|
172.60 |
|
|
|
Interest Payable |
|
|
172.60 |
|
|
Interest on $30,000, 7%, 120-day note |
|
|
|
May 31 The company recorded the May interest expense related to the $30,000
note payable.
Interest = principal x rate x time.
$178.36 = $30,000 x .07 x 31/365.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $178.36 |
|
|
+ |
- $178.36 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
May 31 |
Interest Expense |
|
178.36 |
|
|
|
Interest Payable |
|
|
178.36 |
|
|
Interest on $30,000, 7%, 120-day note |
|
|
|
June 30 The company recorded the June interest expense related to the $30,000
note payable.
Interest = principal x rate x time.
$172.60 = $30,000 x .07 x 30/365.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $172.60 |
|
|
+ |
- $172.60 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
June 30 |
Interest Expense |
|
172.60 |
|
|
|
Interest Payable |
|
|
172.60 |
|
|
Interest on $30,000, 7%, 120-day note |
|
|
|
July 14 The company recorded the July interest expense related to the $30,000
note payable.
Interest = principal x rate x time.
$80.55 = $30,000 x .07 x 14/365.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $80.55 |
|
|
+ |
- $80.55 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
July 14 |
Interest Expense |
|
80.55 |
|
|
|
Interest Payable |
|
|
80.55 |
|
|
Interest on $30,000, 7%, 120-day note |
|
|
|
July 14 The company paid the note payable and interest.
Principal = $30,000.
Interest = principal x rate x time.
$690.41 = $30,000 x .07 x 120/365.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
- $30,690.41 |
= |
- $30.000.00 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
July 14 |
Notes Payable |
|
30,000.00 |
|
|
|
Interest Payable |
|
690.41 |
|
|
|
Cash |
|
|
30,690.41 |
|
|
Payment of $30,000, 7%, 120-day note |
|
|
|
Exercise 10.3: Using Notes Payable to Purchase Merchandise
The Tucker Corporation received $74,000 from customers for merchandise it
sold to them. The merchandise was purchased by the Tucker Corporation when it
issued a $40,000, 8%, 90-day note payable. The company paid the $40,000 note
and interest at the end of 90 days. Determine the dollar amount by which the
Tucker Corporation’s resources increased by using notes payable to
acquire merchandise and then selling the merchandise to customers.
|
Cash received from customers |
|
$74,000.00 |
|
Cash paid for merchandise |
|
|
|
Note principal |
$40,000.00 |
|
|
Note interest ($40,000 x .08 x 90/365) |
$789.04 |
$40,789.04 |
|
Resource increase |
|
$33,210.96 |
Exercise 10.4: Purchases Discounts
The Clark Corporation purchases most of its merchandise inventory on account. For each of the following purchases, determine the amount of the purchases discount that the Clark Corporation can take if its pays within the discount period.
1. $20,000 merchandise purchased with terms of 2/10, n/30.
$400: $20,000 x .02 = $400.
2. $10,000 merchandise purchased with terms of 1/15, n/30.
$100: $10,000 x .01 = $100.
3. $25,000 merchandise purchased with terms of n/15.
$0: n/15 means no discount is allowed and payment is
required within 15 days.
Exercise 10.5: Accounts Payable Journal Entries
The Mursjid Corporation engaged in several transactions related to accounts payable. Prepare journal entries to record the company’s following transactions. Before you prepare each journal entry, determine the transaction’s effects on the company’s resources and sources of resources.
May 10 The company purchased $20,000 of merchandise on account from the
Antonelli Company. Purchase terms were 2/10, n/30.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
+ $20,000 |
= |
+ $20,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
May 10 |
Merchandise Inventory |
|
20,000 |
|
|
|
Accounts Payable |
|
|
20,000 |
|
|
Merchandise purchase on account |
|
|
|
May 13 The company purchased $16,000 of merchandise on account from the Laurenza
Company. Purchase terms were 1/10, n/30.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
+ $16,000 |
= |
+ $16,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
May 13 |
Merchandise Inventory |
|
16,000 |
|
|
|
Accounts Payable |
|
|
16,000 |
|
|
Merchandise purchase on account |
|
|
|
May 18 The company paid for the merchandise purchased on May 10 from the
Antonelli Company.
Purchases discount = $20,000 x .02 = $400.00.
Cash payment = $20,000 - $400 = $19,600.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
- $19,600 |
= |
- $20,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
May 18 |
Accounts Payable |
|
20,000 |
|
|
|
Cash |
|
|
19,600 |
|
|
Merchandise Inventory |
|
|
400 |
|
|
Accounts payable payment |
|
|
|
May 25 The company purchased $14,000 of merchandise on account from the Brown
Company. Purchase terms were n/30.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
+ $14,000 |
= |
+ $14,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
May 25 |
Merchandise Inventory |
|
14,000 |
|
|
|
Accounts Payable |
|
|
14,000 |
|
|
Merchandise purchase on account |
|
|
|
June 10 The company paid for the merchandise purchased on May 13 from the
Laurenza Company.
No discount can be taken. Payment was made after the
discount period.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
- $16,000 |
= |
- $16,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
June 10 |
Accounts Payable |
|
16,000 |
|
|
|
Cash |
|
|
16,000 |
|
|
Accounts payable payment |
|
|
|
June 14 The company purchased $10,000 of merchandise for cash from the
Antonelli Company.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
+ $10,000 |
|
|
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
June 14 |
Merchandise Inventory |
|
10,000 |
|
|
|
Cash |
|
|
10,000 |
|
|
Merchandise purchase for cash |
|
|
|
June 22 The company paid for the merchandise purchased on May 25 from the
Brown Company.
No discount can be taken. Payment terms were n/30.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
- $14,000 |
= |
- $14,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
June 22 |
Accounts Payable |
|
14,000 |
|
|
|
Cash |
|
|
14,000 |
|
|
Accounts payable payment |
|
|
|
Exercise 10.6: Sales Taxes Payable Journal Entries
The DeVelis Corporation operates in a state that has a 7% sales tax. Prepare journal entries to record the company’s following transactions. Before you prepare each journal entry, determine the transaction’s effects on the company’s resources and sources of resources.
July 1-31 The company had credit sales of $35,000 during July.
Sales tax = $35,000 x .07 = $2,450.
Customers were charged $37,450 ($35,000 + $2,450).
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
+ $37,450 |
= |
+ $2,450 |
|
|
+ |
+ $35,000 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
July 1-31 |
Accounts Receivable |
|
37,450 |
|
|
|
Sales Taxes Payable |
|
|
2,450 |
|
|
Sales |
|
|
35,000 |
|
|
July credit sales |
|
|
|
July 1-31 The company had cash sales of $49,000 during July.
Sales tax = $49,000 x .07 = $3,430.
Customers were charged $52,430 ($49,000 + $3,430).
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
+ $52,430 |
= |
+ $3,430 |
|
|
+ |
+ $49,000 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
July 1-31 |
Cash |
|
52,430 |
|
|
|
Sales Taxes Payable |
|
|
3,430 |
|
|
Sales |
|
|
49,000 |
|
|
July cash sales |
|
|
|
Aug. 9 The company paid the sales taxes due for July sales.
Sales taxes paid = $5,880 ($2,450 + $3,430).
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
- $5,880 |
= |
- $5,880 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
Aug. 9 |
Sales Taxes Payable |
|
5,880 |
|
|
|
Cash |
|
|
5,880 |
|
|
July sales taxes payment |
|
|
|
Exercise 10.7: Sales Taxes Payable
The Bithoney Corporation sells its products for cash. The company operates in a state that has a 6% sales tax. During February, the company recorded sales taxes payable of $48,000.
1. Calculate the dollar amount of cash sales recorded by the Bithoney Corporation in February.
Sales taxes = $48,000.
Sales taxes = .06 x sales
$48,000 = .06 x sales
Sales = $48,000 / .06 = $800,000.
2. Calculate the dollar amount of cash collected from customers by the Bithoney
Corporation in February.
Cash collected = cash sales + sales taxes.
Cash collected = $800,000 + $48,000 = $848,000.
Exercise 10.8: Income Taxes Expense
The 2009
|
Taxable Income |
Income Taxes Payable |
||
|
From |
To |
|
Of taxable |
|
$0 |
$50,000 |
$0 + 15% |
$0 |
|
50,001 |
75,000 |
$7,500 + 25% |
50,000 |
|
75,001 |
100,000 |
$13,750 + 34% |
75,000 |
|
100,001 |
335,000 |
$22,250 + 39% |
100,000 |
|
335,001 |
10,000,000 |
$113,900 + 34% |
335,000 |
|
10,000,001 |
15,000,000 |
$3,400,000 + 35% |
10,000,000 |
|
15,000,001 |
18,333,333 |
$5,150,00 + 38% |
15,000,000 |
|
18,333,334 |
|
35% |
0 |
Calculate the Cavaretta Corporation’s 2009 income taxes payable under each of the following independent conditions.
1. Cavaretta Corporation’s taxable income is $30,000.
$30,000 x .15 = $4,500.
2. Cavaretta Corporation’s taxable income is $400,000.
$113,900 + ($65,000 x .34) = $113,900 + $22,100 =
$136,000.
3. Cavaretta Corporation’s taxable income is $12,000,000.
$3,400,000 + ($2,000,000 x .35) = $3,400,000 +
$700,000 = $4,100,000.
4. Cavaretta Corporation’s taxable income is $30,000,000.
$30,000,000 x .35 = $10,500,000.
5. Cavaretta Corporation’s taxable income is $3,500,000,000.
$3,500,000,000 x .35 = $1,225,000,000.
Exercise 10.9: Income Taxes Expense and Payable
For the year ended December 31, the Campbell Corporation reported taxable income of $780,000. The company used the same accounting methods for tax purposes and for its financial statements.
1. Calculate the dollar amount of the company’s income taxes expense and income taxes payable. For simplification, assume that the income taxes rate is 35%.
$780,000 x .35 = $273,000.
2. Prepare the journal entry to record the corporation’s income taxes,
assuming that the taxes are not paid until the following year. Before you
prepare the entry, determine the transaction’s effects on the
company’s resources and sources of resources.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $273,000 |
|
|
+ |
- $273,000 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
Dec. 31 |
Income Taxes Expense |
|
273,000 |
|
|
|
Income Taxes Payable |
|
|
273,000 |
|
|
Income taxes expense |
|
|
|
3. Prepare the journal entry to record the corporation’s income taxes cash
payment made in the following year. Before you prepare the entry, determine the
transaction’s effects on the company’s resources and sources of
resources.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
- $273,000 |
= |
- $273,000 |
|
|
|
|
|
Date |
Description |
Post. |
Debits |
Credits |
|
|
Income Taxes Payable |
|
273,000 |
|
|
|
Cash |
|
|
273,000 |
|
|
July sales taxes payment |
|
|
|
Exercise 10.10: Deferred Income Taxes
There are several differences between the accounting methods the DAmico Corporation uses in the preparation of its financial statements and in the preparation of its federal income taxes return. For the year ended December 31, the company’s taxable income on its income statement was $175,000, while it was $160,000 for income taxes purposes. For simplification, assume that the income taxes rate is 35%.
1. Calculate the income taxes expense the company would report on its income statement.
$175,000 x .35 = $61,250.
2. Calculate the income taxes payable the company would report on its income
taxes return.
$160,000 x .35 = $56,000.
3. Prepare the journal entry to record the corporation’s income taxes for
the year ended December 31, assuming taxes are not paid until the following
year. Before you prepare the entry, determine the transaction’s effects
on the company’s resources and sources of resources.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $56,000 |
|
|
+ |
- $61,250 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
Dec. 31 |
Income Taxes Expense |
|
61,250 |
|
|
|
Income Taxes Payable |
|
|
56,000 |
|
|
Deferred Income Taxes Payable |
|
|
5,250 |
|
|
Federal income taxes |
|
|
|
Exercise 10.11: Gross Pay
The Sanghani Corporation has four employees. David Lambert and Susan LaMarca are salaried employees, while Marc Ahdab and Pamela Budd are hourly employees. Lambert’s salary is $2,000 per week. LaMarca’s salary is $1,500 per week. Ahdab and Budd each earn 8$ per hour plus .5% of their weekly sales. During the week ended September 25, Ahdab worked 40 hours and generated sales of $8,000, while Budd worked 40 hours and generated sales of $7,000. For her excellent performance, LaMarca earned a $250 bonus.
Calculate the gross pay of each of the Sanghani Corporation’s four employees for the week ended September 25.
Lambert = $2,000.
LaMarca = $1,500 + $250 bonus = $1,750.
Ahdab = (40 hours x $8 = $320) + ($8,000 x .005 =$40) = $360.
Budd = (40 hours x $8 = $320) + ($7,000 x .005 =
$35) = $355.
Exercise 10.12: FICA Taxes
For 2009, the OASDI FICA tax rate is 6.2% of the first $106,800 of employee
earnings and the Medicare FICA tax is 1.45% of all earnings. Prior to November
8, the Daoulas Corporation’s three employees had the following gross pay:
Stephen Collins $105,600, Reno Defilippis $24,000, and Joseph Meuse $6,700.
During the week ended November 14, Collins earned $2,500, Defilippis $900, and
Calculate the dollar amount of OASDI and Medicare taxes withheld from the
pay of each of the Daoulas Corporation’s three employees for the week
ended November 14.
|
|
OASDI |
Medicare |
|
Collins |
$1,200 x .062 = $74.40 |
$2,500 x .0145 = $36.25 |
|
Defilippis |
$900 x .062 = $55.80 |
$900 x .0145 = $13.05 |
|
|
$500 x .062 = $31.00 |
$500 x .0145 = $7.25 |
Exercise 10.13: Net Pay
For 2009, the OASDI FICA tax rate is 6.2% of the first $106,800 of employee earnings and the Medicare FICA tax is 1.45% of all earnings. Prior to October 12, Kevin Peters had earned gross pay of $105,100. During the week ended October 18, Peters earned $3,000. During the week, in addition to FICA taxes, Peters had federal income taxes of $800, state income taxes of $150, and union dues of $20 withheld from his pay.
Calculate the dollar amount of Peters’ net pay for the week ended October
18.
|
Gross |
|
$3,000.00 |
|
Deductions |
|
|
|
Federal income taxes |
$800.00 |
|
|
State income taxes |
150.00 |
|
|
OASDI FICA taxes ($1,700 x .062) |
105.40 |
|
|
Medicare FICA taxes ($3,000 x .0145) |
43.50 |
|
|
Union dues |
20.00 |
1,118.90 |
|
Net Pay |
|
$1,881.10 |
Exercise 10.14: Payroll Journal Entries
For the week ended June 11, the Laquidara Corporation’s payroll was as
follows.
|
Gross pay |
$265,000.00 |
|
Deductions: |
|
|
Federal Income Taxes |
$78,500.00 |
|
State Income Taxes |
$13,400.00 |
|
OASDI FICA Taxes |
$14,200.00 |
|
Medicare FICA Taxes |
$3,842.50 |
|
Union Dues |
$950.00 |
|
Insurance |
$2,400.50 |
Prepare the journal entry to record the corporation’s payroll for the
week ended June 11. Before you prepare the entry, determine the
transaction’s effects on the company’s resources and sources of
resources.
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $265,000 |
|
|
+ |
- $265,000 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
June 11 |
Salaries and Wages Expense |
|
265,000.00 |
|
|
|
Federal Income Taxes Withheld |
|
|
78,500.00 |
|
|
State Income Taxes Withheld |
|
|
13,400.00 |
|
|
FICA Taxes Payable |
|
|
18,042.50 |
|
|
Union Dues Payable |
|
|
950.00 |
|
|
Insurance Payable |
|
|
2,400.50 |
|
|
Salaries and Wages Payable |
|
|
151,707.00 |
|
|
June 11 payroll |
|
|
|
Exercise 10.15: Employer Payroll Taxes
Prior to December 14, the Smetana Corporation’s three employees had the following gross pay: Kevin Shaw $106,200, Melissa Machado $28,000, and Linda Forte $6,800. During the week ended December 20, Shaw earned $2,900, Machado $1,100, and Forte $800. For 2009, the OASDI FICA tax rate is 6.2% of the first $106,800 of employee earnings and the Medicare FICA tax is 1.45% of all earnings. The corporation’s federal unemployment tax rate is .8% of the first $7,000 earned by each employee and its state unemployment tax rate is 5.4% of the first $7,000 earned by each employee.
1. Calculate the dollar amount of each of the following payroll taxes for the Smetana Corporation for the week ended December 20.
A. OASDI FICA tax.
|
Shaw ($600 x .062 ) |
$37.20 |
|
Machado ($1,100 x .062) |
68.20 |
|
Forte ($800 x .062) |
49.60 |
|
Total |
$155.00 |
B. Medicare FICA tax.
|
Shaw ($2,900 x .0145 ) |
$42.05 |
|
Machado ($1,100 x .0145) |
15.95 |
|
Forte ($800 x .0145) |
11.60 |
|
Total |
$69.60 |
C. Federal unemployment tax.
|
Shaw ($0 x .008 ) |
$0.00 |
|
Machado ($0 x .008) |
0.00 |
|
Forte ($200 x .008) |
1.60 |
|
Total |
$1.60 |
D. State unemployment tax.
|
Shaw ($0 x .054 ) |
$0.00 |
|
Machado ($0 x .054) |
0.00 |
|
Forte ($200 x .054) |
10.80 |
|
Total |
$10.80 |
2. Prepare the journal entry to record the corporation’s payroll taxes
for the week ended December 20, assuming that the taxes are not paid until the
following year. Before you prepare the entry, determine the transaction’s
effects on the company’s resources and sources of resources.
Total payroll taxes = $237.00 ($155.00 + $69.60 +
$1.60 + $10.80).
|
Total |
= |
Sources of |
+ |
Sources of |
+ |
Sources of |
|
Assets |
= |
Liabilities |
+ |
Stockholders’ Equity |
||
|
|
|
+ $237 |
|
|
+ |
- $237 |
|
Date |
Description |
Post. |
Debits |
Credits |
|
Dec. 20 |
Payroll Taxes Expense |
|
237.00 |
|
|
|
FICA Taxes Payable |
|
|
224.60 |
|
|
Federal Unemployment Taxes Payable |
|
|
1.60 |
|
|
State Unemployment Taxes Payable |
|
|
10.80 |
|
|
December 20 payroll taxes |
|
|
|
Exercise 10.16: Reporting Current Liabilities
The following account balances were reported by the Sotirakos Corporation on
March 31. Prepare the current liabilities section of the company’s March
31 balance sheet.
|
Accounts Payable |
$18,000 |
|
Accounts Receivable |
$46,000 |
|
Accumulated Depreciation, Buildings |
$35,000 |
|
Accumulated Depreciation, Equipment |
$85,000 |
|
Allowance for Uncollectible Accounts |
$7,500 |
|
Buildings |
$240,000 |
|
Cash |
$9,300 |
|
Common Stock |
$150,000 |
|
Current Portion of Long-term Debt |
$16,500 |
|
Equipment |
$459,000 |
|
Land |
$45,000 |
|
Long-term Debt |
$395,000 |
|
Merchandise Inventory |
$57,500 |
|
Notes Payable |
$180,000 |
|
Retained Earnings |
$120,300 |
|
Taxes Payable |
$11,500 |
|
Current Liabilities |
|
|
Notes Payable |
$180,000 |
|
Accounts Payable |
18,000 |
|
Taxes Payable |
11,500 |
|
Current Portion of Long-term Debt |
16,500 |
|
Total Current Liabilities |
$226,000 |