Chapter 9: Problem Set A

Problem 9-1A: Short-term notes payable transactions 1. Maturity Date Calculation: o Use the issuance date and note term to calculate the maturity date. 2. Interest Due at Maturity: o Formula: Interest=Principal×Rate×(Time (in days)360) o For example, if Locust Co. has a principal of $7,000 at an interest rate of 5% for 90 days: Interest=7,000×0.05×90360=875 3. Adjusting Entries for Year-End Interest: o Calculate interest accrued up to December 31 for each note, then prepare adjusting entries. 4. Journal Entries: o Prepare entries for each note issuance, interest accrual, and note payment upon maturity. Problem 9-2A: Entries for payroll transactions 1. FICA Social Security and Medicare Taxes: o Calculate for each employee based on a gross payroll of $88,600 (office + sales salaries).  FICA Social Security: 88,600×6.2%=5,493.20  FICA Medicare: 88,600×1.45%=1,283.70 2. Employee Payroll Journal Entry: o Debit Salaries Expense and credit the various withholdings and Salaries Payable based on the calculated FICA, income tax, medical insurance, and union dues deductions. 3. Employer Payroll Taxes: o State Unemployment (SUTA) and Federal Unemployment (FUTA) taxes:  SUTA: 88,600×5.4%=4,784.40  FUTA: 88,600×0.6%=531.60 o Record employer’s portion of FICA and FUTA/SUTA as Payroll Tax Expense. Problem 9-3A: Payroll expenses, withholdings, and taxes 1. FICA and Medicare Withholdings for Each Employee: o Social Security: Gross Pay×6.2 o Medicare: Gross Pay×1.45% 2. Employer Payroll Tax Calculations: o Employer’s FICA, FUTA, and SUTA taxes follow the same rates applied to the employees’ gross pay. 3. Net Pay Calculation: o Deduct FICA, Medicare, insurance, and pension contributions from gross pay. 4. Total Payroll-Related Expense: o Sum of gross pay, employer-paid taxes, health insurance contribution, and pension fund contribution. Problem 9-4A: Estimating warranty expense and liability 1. Warranty Expense and Liability: o Estimated warranty cost is 8% of sales. o Record a warranty expense and liability for each period. 2. Journal Entries for Warranty Replacements: o Each replacement is recorded by reducing the Estimated Warranty Liability and inventory for the cost of each returned item. Problem 9-5A: Computing and analyzing times interest earned 1. Times Interest Earned Calculation: o Formula: Times Interest Earned=Net Income+Interest ExpenseInterest Expense 2. Net Income Adjustments: o Calculate adjusted net income based on a 30%, 50% increase and a 10%, 40% decrease in sales. 3. Analysis of Ability to Pay: o Compare the companies’ resilience to changes in net income under varying sales conditions. Problem 9-6AA: Entries for payroll transactions 1. Payroll Tax Payments and Expenses: o Journal entries for payroll tax payments to Swift Bank and state unemployment taxes, including Form 941 filings. 2. Monthly Payroll Journal Entry: o Record March payroll with employee deductions for FICA, income tax, and unemployment tax contributions. 3. Employer Payroll Taxes for March: o Calculate and record FICA, FUTA, and SUTA contributions based on payroll. Each problem focuses on essential steps in accounting, from calculation setups to final journal entries, aligning with accounting principles for liability and payroll management. These steps ensure accurate financial reporting and regulatory compliance across various business transactions. Let me know if you would like detailed journal entries or additional calculations for any specific problem.