Accounting: Assignment 11

Assignment 11.1 Handout

1. On August 31, 2010, Gordon, Co., purchased $7,000 of inventory on a one-year, 12% note

payable.

Requirements

R1. Journalize the company’s accrual of interest expense on February 28, 2011, their fiscal year-

end.

R2. Journalize the company’s payment of the note plus interest on August 31, 2011.

2. Catskills Corporation guarantees its snowmobiles for three years. Company experience

indicates that warranty costs will add up to 5% of sales. Assume that the Catskills dealer in

Colorado Springs made sales totaling $519,000 during 2011. The company received cash for

20% of the sales and notes receivable for the remainder. Warranty payments totaled $19,000

during 2011.

Requirements

R1. Record the sales, warranty expense, and warranty payments for the company.

R2. Post to the Estimated warranty payable T-account. At the end of 2011, how much in

Estimated warranty payable does the company owe?

3. Farley Motors, Inc., a motorcycle manufacturer, included the following note (adapted) in its

annual report:

Requirements

R1. Why are these contingent (versus real) liabilities?

R2. How can a contingent liability become a real liability for Farley Motors? What are the limits to

the company’s product liabilities in the United States?

4. Gina Tarver is paid $720 for a 40-hour workweek and time-and-a-half for hours above 40.

Requirements

R1. Compute Tarver’s gross pay for working 52 hours during the first week of February.

R2. Tarver is single, and her income tax withholding is 20% of total pay. Tarver’s only payroll

deductions are payroll taxes. Compute Tarver’s net (take-home) pay for the week. Use an 8%

FICA tax rate, and carry amounts to the nearest cent.

5. Return to the Gina Tarver payroll situation in Short Exercise 10-4. Tarver’s employer, College

of St. Mary, pays all the standard payroll taxes plus benefits for employee retirement plan (4% of

total pay), health insurance ($105 per employee per month), and disability insurance ($11 per

employee per month).

Requirement

R1. Compute College of St. Mary’s total expense of employing Gina Tarver for the 52 hours that

she worked during the first week of February. Carry amounts to the nearest cent.

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6. Suppose you work for DePetro-Carr, the accounting firm, all year and earn a monthly salary of

$6,800. There is no overtime pay. Your withheld income taxes consume 25% of gross pay. In

addition to payroll taxes, you elect to contribute 6% monthly to your retirement plan. DePetro-Carr

also deducts $110 monthly for your co-pay of the health insurance premium.

Requirement

R1. Compute your net pay for November. Use an 8% FICA tax rate.

7. Consult your solutions for problems #4 and #5.

Requirements

R1. Journalize salary expense for College of St. Mary related to the employment of Gina Tarver.

R2. Journalize benefits expense for College of St. Mary related to the employment of Gina

Tarver.

R3. Journalize employer payroll taxes for College of St. Mary related to the employment of Gina

Tarver.

8. Consider the following note payable transactions of Crandell Video Productions.

Requirement

R1. Journalize the transactions for the company.

9. The accounting records of Earthtone Ceramics included the following at December 31, 2011:

In the past, Earthtone’s warranty expense has been 5% of sales. During 2012, Earthtone made

sales of $115,000 and paid $4,000 to satisfy warranty claims.

Requirements

R1. Journalize Earthtone’s warranty expense and warranty payments during 2012. Explanations

are not required.

R2. What balance of Estimated warranty payable will Earthtone report on its balance sheet at

December 31, 2012?

10. Juan’s Mexican Restaurants incurred salary expense of $62,000 for 2009. The payroll

expense includes employer FICA tax of 8%, in addition to state unemployment tax of 5.4% and

federal unemployment tax of 0.8%. Of the total salaries, $19,000 is subject to unemployment tax.

Also, the company provides the following benefits for employees: health insurance (cost to the

company, $2,040), life insurance (cost to the company, $380), and retirement benefits (cost to the

company, 5% of salary expense).

Requirement

R1. Record Juan’s expenses for employee benefits and for payroll taxes. Explanations are not

required.

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