E 13-1 How would each of the following items be reported on

the balance sheet?

(a) Accrued vacation pay

CURRENT LIABILITY
(b) Estimated taxes payable
CURRENT LIABILITY
© Service warranties on appliance sales
CURRENT or LONGTERM LIABILITY depending
upon terms of lease
(d) Bank overdraft
CURRENT LIABILITY
(e) Employee payroll deductions unremitted.

CURRENT LIABILITY
(f) Unpaid bonus to officers

CURRENT LIABILITY
(g) Deposit received from customer to guarantee performance of
a contract.

CURRENT LIABILITY or LONGTERM

(h) Sales taxes payable
CURRENT LIABILITY
(I) Gift certificates sold to customers but not yet redeemed.

CURRENT LIABILITY
(j) Premium offers outstanding.

CURRENT LIABILITY
(k) Discount on notes payable.

CONTRA TO NOTE PAYABLE

(l) Personal injury claim pending.
FOOTNOTE unless FAS 5 contingency
(M) Current maturities of long-term debt to be paid from
current assets.
CURRENT LIABILITY
(N) Cash dividends declared but not yet paid
CURRENT LIABILITY

(O) Dividends in arrears on preferred stock.

FOOTNOTE
(p) Loans from officers
as either LONGTERM or CURRENT LIABILITY
The following are selected 2007 transactions of Sean Astin Corporation.

a. PREPARE JOURNAL ENTRIES for the selected transactions above.

Sept 1. Purchased inventory from Encino Company on account for $50,0000.

Astin records purchases GROSS and uses a PERIODIC INVENTORY
SYSTEM.

Purchases................. $50,000
A/P........................... $50,000
The following are selected 2007 transactions of Sean Astin Corporation.

a. PREPARE JOURNAL ENTRIES for the selected transactions above.

Oct 1. Issued a $50,000, 12-month, 8% note to Encino in payment of

account.

A/P................. $50,000
N/P..............................$50,000
The following are selected 2007 transactions of Sean Astin Corporation.

a. PREPARE JOURNAL ENTRIES for the selected transactions above.

Oct 1. Borrowed $50,000 from the Shore Bank by signing a 12-month,

non-interest bearing $54,000 note.

Cash.............. $50,000
Discount........ $ 4,000
N/P................$54,000
B. Prepare ADJUSTING ENTRIES.

FOR INTEREST BEARING NOTE.

Oct 1. Issued a $50,000, 12-month, 8% note to Encino in payment of

account.

$50,000 x .08 x 3/12 = $1,000

Interest expense......................... $1,000

Interest payable.....................$1,000
B. Prepare ADJUSTING ENTRIES.

FOR NON-INTEREST BEARING NOTE.

Oct 1. Borrowed $50,000 from the Shore Bank by signing a 12-month,

non-interest bearing $54,000 note.

$50,000 x .08 x 3/12 = $1,000 or ($4,000 / 12) * 3 = $1,000

Interest expense......................... $1,000

Discount ...............................$1,000
C. Compute the total net liability to be reported on the December 31 balance sheet
for:

(1) THE INTEREST BEARING NOTE:

Interest payable..................... $ 1,000

N/P........................................ $ 50,000
------------------------------------------------
Total net liability................ $51,000
C. Compute the total net liability to be reported on the December 31 balance sheet
for:

(1) THE NON-INTEREST BEARING NOTE:

N/P........................... $54,000
-
Unamortized Disc.... $3,000 (4K- 1K)
-----------------------------------------------------
Net liability.............. $51,000
• 12/31/07 Kate Holmes has $7,000,000 of short-term debt
in form of n/p to Gotham Bank due periodically in 2008.
• 1/28/08, Holmes enters into refinancing agreement with
Gotham
• Can borrow up to 60% of gross amount of its A/R.
• Receivables will range between LO $6 MIL in May
to HI of $8 MIL in Oct during 2008.
• Interest on short-term debt is 15%.
• New agreement has fluctuating interest of 1% above prime
rate on notes due in 2012.
• 12/31/07 balance sheet is issued 2-15-08.

INSTRUCTIONS:
Prepare partial balance sheet for Holmes for 12/31/07 showing
how $7,000,000 of short-term debt should be presented,
including footnote disclosure.
Enterprise is REQUIRED to exclude a short-term obligation
from current liabilities only if BOTH of the following conditions
are met:

INTENDS TO REFINANCE the obligation on

long-term basis… AND...

DEMONSTRATES AN ABILITY to consummate the

refinancing.

* A financing agreement suffices

 Kate Holmes Company
Partial Balance Sheet
December 31, 2007

Current liabilities:
Notes payable (Note 1) $3,400,000

Long-term debt:
Notes payable expected to be refinanced in 2008 (Note 1)
3,600,000
Note 1.
Under a financing agreement with Gotham State Bank the Company may
borrow up to 60% of the gross amount of its accounts receivable at an interest cost of
1% above the prime rate. The Company intends to issue notes maturing in 2012 to
replace $3,600,000 of short-term, 15%, notes due periodically in 2008. Because the
amount that can be borrowed may range from $3,600,000 to $4,800,000, only
$3,600,000 of the $7,000,000 of currently maturing debt has been reclassified as long-
term debt.
•Matt Broderick Co. began operations on January 2, 2006.
• 9 employees who work 8-hr days.
• Paid hourly.
• Each earns 10 paid vacation days/yr
• Each earns 6 paid sick days/yr.
• Vacation may be taken after 1/15 of year following year
earned.
• Sick days can be taken as soon as earned.
• Unused sick days accumulate.
• ADDITIONALLY

Actual Hourly Vacation Days Used Sick Days Used

Wage Rate by Each Employee by Each Employee
2006 2007 2006 2007 2006 2007
$10 $11 0 9 4 5
• Matt Broderick Co. has chosen to
• Accrue cost of compensated absences at rates of pay in effect
during period when earned.
• And to accrue sick pay when earned.

INSTRUCTIONS:
(a) Prepare journal entries to record transactions related to
compensated absences during 2006 and 2007.

(b) Compute the amounts of any liability for compensated

absences that should be reported on the balance sheet at
December 31, 2006 and 2007.
? What is the cost for vacation pay for 2006?
(1) 9 employees X $10.00/hr. X 8 hrs./day X 10 days = $7,200
? What is the cost for sick pay for 2006?
(2) 9 employees X $10.00/hr. X 8 hrs./day X 6 days = $4,320

? What is the journal entry to record both for 2006?

Wage expense………………11,520
Vacation wages/p…………… 7,200
Sick wages payable…………. 4,320
? What additional entry is needed for 2006? Sick days used
(3) 9 employees X $10.00/hr. X 8 hrs./day X 4 days = $2,880
Sick wages payable……… 2,880
Cash………………………….2,880
? What is the cost for vacation pay for 2007?
(4) 9 employees X $11.00/hr. X 8 hrs./day X 10 days = $7,920
? What is the cost for sick pay for 2007?
(5) 9 employees X $11.00/hr. X 8 hrs./day X 6 days = $4,752

? What is the journal entry to record both for 2007?

Wage expense………………12,672
Vacation wages/p…………… 7,920
Sick wages payable…………. 4,752
? How much cash goes out for vacation and sick pay in 2007?

(8) 9 employees X $11.00/hr. X 8 hrs./day X 9 days = $7,128 vacation

9 employees X $11.00/hr. X 8 hrs./day X 5 days = +3,960sick = $11,088
TOTAL CREDIT TO CASH IN JOURNAL ENTRY $11,088
 By how much does sick pay payable get debited?
DR. TO SICK WAGES/P
(7) 9 employees X $10.00/hr. X 8 hrs./day X (6-4=2) days = $1,440
9 employees X $11.00/hr. X 8 hrs./day X (5-2=3) days = +2,376 = $3,816
5 days in total; 2 from last year, 3 from this year.
By how much vacation payable get debited?

(6) 9 employees X $10.00/hr. X 8 hrs./day X 9 days = $6,480

all is from last year DR. TO VACATION/P
What else gets debited?
Wage expense (for extra $1 for vacation and sick pay).
SICK PAY: 9 PEOPLE X ($11-$10) X 8HRS/DAY X 2 DAYS last yr = $144

VACATION PAY: 9 PEOPLE X ($11-$10) X 8HRS/DAY X 9 DAYS last yr = $648

$792 DR TO
WAGE EXPENSE
Wage Expense……………. $792
Sick wages payable….… $3,816
Vacation wages payable $6,480
Cash……………. $11,088

(b) Compute the amounts of any liability for compensated

absences that should be reported on the balance sheet at
December 31, 2006 and 2007.
 2006 2007
vac/p sick/p vac/p sick/p

Jan. 1 balance $0,000) $0,000) $7,200) $1,440)

+ accrued 7,200) 4,320) 7,920) 4,752)
– paid ( 0) (2,880) (6,480) (3,816)
Dec. 31 balance$7,200 $1,440 $8,640 $2,376
 Green Day Hardware Company payroll for November 2007 is summarized below:

Amt subject to Payroll Taxes

Unemployment tax
Payroll Wages due FICA FED STATE
Factory $120,000 $120,000 $40,000 $40,000
Sales 32,000 32,000 4,000 4,000
Administrative 36,000 36,000 --- ---
----------- ------------- ------------- -----------
$188,000 $188,000 $44,000 $44,000

At this point in the year some employees have already received wages in excess of those
to which payroll taxes apply. Assume that the SUTA is 2.5%. The FICA rate is 7.65%
on an emloyees wages to $90,000 and then 1.45% in excess of $90,000. Of the
$188,000 wages subject to FICA tax, $20,000 is in excess of $90,000 to the sales
wages. FUTA tax rate is .8% after credits. Income tax withheld amounts to $16K
for factory, $7,000 for sales, and $6,000 for administrative.

A. Prepare a schedule showing the employer's total cost of wages for November
by function.
Function: TOTAL FACTORY SALES ADMIN

Wages $188,000 $120,000 $32,000 $36,000

Additional Costs
$9,180 $1,208 $2,754
FICA $13,142
$36,000 x .0765 = $2,754
$120,000 x .0765 = $9,180

$32,000 in total wages ($20,000 are taxed

at 1.45%) and the rest at 7.65%.

$20,000 x .0145 = $290

+
$12,000 x .0765% = $918
----------------------------------
$1,208
Function: TOTAL FACTORY SALES ADMIN

FUTA Wages $44,000 $40,000 $4,000 $-0-

Additional Costs
$9,180 $1,208 $2,754
FICA $13,142

FUTA $352 $320 $32 ---

$40,000 x .008 = $320 $4,000 x .008 = $32 $0 x .008

= $0
Function: TOTAL FACTORY SALES ADMIN

SUTA Wages $44,000 $40,000 $4,000 $-0-

Additional Costs
$9,180 $1,208 $2,754
FICA $13,142

FUTA $352 $320 $32 ---

SUTA $1,100 $1,000 $100 ---

$40,000 x .025 = $1,000

$4,000 x .025 = $100
Function: TOTAL FACTORY SALES ADMIN

Additional Costs
$9,180 $1,208 $2,754
FICA $13,142

FUTA $352 $320 $32 ---

SUTA $1,100 $1,000 $100 ---

$202,594 $130,500 $33,340 $2,754

B. Prepare the JOURNAL ENTRIES to record the factory, sales
and administrative payrolls including the employer's payroll
taxes.

FACTORY PAYROLL

Wages/salaries expense…….. $120,000

Withholding taxes payable………….. $16,000 (given)
FICA payable………………………….$ 9,180 (calculated)
Cash…………………………………… 94,820

Payroll Tax Expense………………..$10,500

FICA payable…………………………….$9,180 (matched above)
FUTA payable…………………………… 320 (calculated)
SUTA payable…………………………… $1000 (calculated)
B. Prepare the JOURNAL ENTRIES to record the factory, sales
and administrative payrolls including the employer's payroll
taxes.

SALES PAYROLL

Wages/salaries expense…….. $32,000

Withholding taxes payable………….. $7,000 (given)
FICA payable………………………….$ 1,208 (calculated)
Cash…………………………………… 23,792

Payroll Tax Expense………………..$1,340

FICA payable…………………………….$1,208 (matched above)
FUTA payable…………………………… 32 (calculated)
SUTA payable…………………………… $100 (calculated)
B. Prepare the JOURNAL ENTRIES to record the factory, sales
and administrative payrolls including the employer's payroll
taxes.

ADMINISTRATIVE PAYROLL

Wages/salaries expense…….. $36,000

Withholding taxes payable………….. $6,000 (given)
FICA payable………………………….$ 2,754(calculated)
Cash…………………………………… 27,246

Payroll Tax Expense………………..$2,754

FICA payable…………………………….$2,754 matched above
 Soundgarden Company sold 200 copy making machines in 2007 for $4,000 apiece,
together with a one-year warranty. Maintenance on each machine during the
warranty period averages $330.

A. Prepare the entries to record the sale of the machines and the related
warranty costs, assuming that the accrual method is used. Actual
warranty costs incurred in 2007 were $17,000.

To record sales of machines. Cash………………$800,000 (200 x $4K)

Sales…………………..$800,000

To record warranty expense.

Warranty expense………$17,000
Cash……………………..$17,000 (actual charges)

Total estimated warranty charges 200 x $330 = $66,000

- $17,000 already charged
----------------------------------
$49,000 addtl adjustment needed
Warranty expense… $49,000
Estimated liability under warranties…….$49,000
B. Prepare the same using the CASH BASIS.

To record sales

Cash…………………$800,000
Sales………………..$800,000 (same cause they were all cash
sales).

To record warranty expense

Warranty expense……….$17,000
Cash…………………….$17,000 (only part paid in cash)
Jud Buechler, president of the Supporting Cast Company, has a bonus arrangement
with the company under which he receives 15% of the net income (after deducting
taxes and bonuses) each year. For the current year, the net income before
deducting either the provision for income taxes or the bonus is $299,750. The
bonus is deductible for tax purposes, and the effective tax rate may be assumed
to be 40%.

Initial formulas: B = .15 ($299,750NI - B - T)

T = .40 ($299,750 - B) * bonus is deductible

B = .15 ($299,750 - B - .40($299,750 - B))

B = .15 ($299,750 - B - $119,900 + .4B)

B = .15 ($179,850 - .6B) B = $26,977.50 - .09B

1.09B = $26,977.50
BONUS = $24,750
B. Compute the appropriate provision for federal income taxes.

T = .40 ($299,750 - B)

T = .40 ($299,750 - $24,750)

T = .40 ($275,000)
T = $110,000

C. JOURNAL ENTRY to record bonus (accrued).

Bonus expense………….. $24,750

Bonus payable…………….$24,750