E3-1 (Transaction Analysis—Service Company)Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred.
April 2 Invested $32,000 cash and equipment valued at $14,000 in the business.
2 Hired a secretary-receptionist at a salary of $290 per week payable monthly.
3 Purchased supplies on account $700. (Debit an asset account.)
7 Paid office rent of $600 for the month.
11 Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.)
12 Received $3,200 advance on a management consulting engagement.
17 Received cash of $2,300 for services completed for Ferengi Co.
21 Paid insurance expense $110.
30 Paid secretary-receptionist $1,160 for the month.
30 A count of supplies indicated that $120 of supplies had been used.
30 Purchased a new computer for $6,100 with personal funds. (The computer will be used exclusively for business purposes.)
Journalize the transactions in the general journal. (Omit explanations.)
E3-2 (Corrected Trial Balance)The trial balance of Wanda Landowska Company (shown on the next page) does not balance. Your review of the ledger reveals the following. (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated $100. (c) A transposition error was made in Accounts Receivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690, respectively. (d) A debit posting to Advertising Expense of $300 was omitted. (e) A $1,500 cash drawing by the owner was debited to Owner’s Capital and credited to Cash.
WANDA LANDOWSKA COMPANY
Property Taxes Payable560
Salaries and Wages Expense4,200
Property Tax Expense 800
$ 20,890 $ 24,500
Prepare a correct trial balance.
E3-6 (Adjusting Entries)Karen Weller, D.D.S., opened a dental practice on January 1, 2014. During the first month of operations, the following transactions occurred.
1.Performed services for patients who had dental plan insurance. At January 31, $750 of such services was performed but not yet billed to the insurance companies.
2.Utility expenses incurred but not paid prior to January 31 totaled $520.
3.Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month.
4.Purchased a one-year malpractice insurance policy on January 1 for $12,000.
5.Purchased $1,600 of dental supplies. On January 31, determined that $500 of supplies were on hand.
Prepare the adjusting entries on January 31. (Omit explanations.) Account titles are Accumulated Depreciation—Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities Expense, and Accounts Payable.
E3-12 (Prepare Financial Statements)Santo Design Agency was founded by Thomas Grant in January
2008. Presented below is the adjusted trial balance as of December 31, 2014.
SANTO DESIGN AGENCY
Cash $ 11,000
Accounts Receivable 21,500
Prepaid Insurance 2,500
Accumulated Depreciation—Equipment $ 35,000
Accounts Payable 5,000
Interest Payable 150
Notes Payable 5,000
Unearned Service Revenue 5,600
Salaries and Wages Payable 1,300
Common Stock 10,000
Retained Earnings 3,500
Service Revenue 61,500
Salaries and Wages Expense 11,300
Interest Expense 500
Depreciation Expense 7,000
Supplies Expense 3,400
Rent Expense 4,000
$ 127,050 $ 127,050
(a)Prepare an income statement and a statement of retained earnings for the year ending December 31, 2014, and an unclassified balance sheet at December 31.
(b)Answer the following questions.
(1)If the note has been outstanding 6 months, what is the annual interest rate on that note?
(2)If the company paid $17,500 in salaries in 2014, what was the balance in Salaries and Wages Payable on December 31, 2013?
P3-4 (Financial Statements, Adjusting and Closing Entries)The trial balance of Bellemy Fashion Center contained the following accounts at November 30, the end of the company’s fiscal year.
BELLEMY FASHION CENTER
Cash $ 28,700
Accounts Receivable 33,700
Accumulated Depreciation—Equipment $ 24,000
Notes Payable 51,000
Accounts Payable 48,500
Common Stock 90,000
Retained Earnings 8,000
Sales Revenue 757,200
Sales Returns and Allowances 4,200
Cost of Goods Sold 495,400
Salaries and Wages Expense 140,000
Advertising Expense 26,400
Utilities Expenses 14,000
Maintenance and Repairs Expense 12,100
Delivery Expense 16,700
Rent Expense 24,000
$ 978,700 $ 978,700
1.Supplies on hand totaled $1,500.
2.Depreciation is $15,000 on the equipment.
3.Interest of $11,000 is accrued on notes payable at November 30.
1.Salaries expense is 70% selling and 30% administrative.
2.Rent expense and utilities expenses are 80% selling and 20% administrative.
3.$30,000 of notes payable are due for payment next year.
4.Maintenance and repairs expense is 100% administrative.
(a)Journalize the adjusting entries.
(b)Prepare an adjusted trial balance.
(c)Prepare a multiple-step income statement and retained earnings statement for the year and a classified balance sheet as of November 30, 2014.
(d)Journalize the closing entries.
(e)Prepare a post-closing trial balance.
P3-9 (Adjusting and Closing)Presented below is the trial balance of the Crestwood Golf Club, Inc. as of
December 31. The books are closed annually on December 31.
CRESTWOOD GOLF CLUB, INC.
Cash $ 15,000
Accounts Receivable 13,000
Allowance for Doubtful Accounts $ 1,100
Prepaid Insurance 9,000
Accumulated Depreciation—Buildings 38,400
Accumulated Depreciation—Equipment 70,000
Common Stock 400,000
Retained Earnings 82,000
Dues Revenue 200,000
Green Fees Revenue 5,900
Rent Revenue 17,600
Utilities Expenses 54,000
Salaries and Wages Expense 80,000
Maintenance and Repairs Expense 24,000
$ 815,000 $ 815,000
(a)Enter the balances in ledger accounts. Allow five lines for each account.
(b)From the trial balance and the information given below, prepare annual adjusting entries and post to the ledger accounts. (Omit explanations.)
(1)The buildings have an estimated life of 30 years with no salvage value (straight-line method).
(2)The equipment is depreciated at 10% per year.
(3)Insurance expired during the year $3,500.
(4)The rent revenue represents the amount received for 11 months for dining facilities. The December rent has not yet been received.
(5)It is estimated that 12% of the accounts receivable will be uncollectible.
(6)Salaries and wages earned but not paid by December 31, $3,600.
(7)Dues received in advance from members $8,900.
(c)Prepare an adjusted trial balance.
(d)Prepare closing entries and post.
<pstyle=”color: rgb(136,=”” 136,=”” 136);=”” font-family:=”” verdana,=”” arial,=”” sans-serif;=”” font-size:=”” 11px;=”” background-color:=”” rgb(253,=”” 253,=”” 253);”=””>E6-4 (Computation of Future Values and Present Values)Using the appropriate interest table, answer the following questions. (Each case is independent of the others).
(a)What is the future value of 20 periodic payments of $4,000 each made at the beginning of each period and compounded at 8%?
(b)What is the present value of $2,500 to be received at the beginning of each of 30 periods, discounted at 10% compound interest?
(c)What is the future value of 15 deposits of $2,000 each made at the beginning of each period and compounded at 10%? (Future value as of the end of the fifteenth period.)
(d)What is the present value of six receipts of $1,000 each received at the beginning of each period, discounted at 9% compounded interest?
E6-7 (Computation of Bond Prices)What would you pay for a $50,000 debenture bond that matures in
15 years and pays $5,000 a year in interest if you wanted to earn a yield of:
E6-12 (Analysis of Alternatives)The Black Knights Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Black Knights has decided to locate a new factory in the Panama City area. Black Knights will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings.
Building A:Purchase for a cash price of $600,000, useful life 25 years.
Building B:Lease for 25 years with annual lease payments of $69,000 being made at the beginning of the year.
Building C:Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $7,000. Rental payments will be received at the end of each year. The Black Knights Inc. has no aversion to being a landlord.
In which building would you recommend that The Black Knights Inc. locate, assuming a 12% cost of funds?
P6-7 (Time Value Concepts Applied to Solve Business Problems)Answer the following questions related to Dubois Inc.
(a)Dubois Inc. has $600,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $80,000 at the end of each year for 12 years, and the other is to receive a single lump-sum payment of $1,900,000 at the end of the 12 years. Which alternative should Dubois select? Assume the interest rate is constant over the entire investment.
(b)Dubois Inc. has completed the purchase of new Dell computers. The fair value of the equipment is $824,150. The purchase agreement specifies an immediate down payment of $200,000 and semiannual payments of $76,952 beginning at the end of 6 months for 5 years. What is the interest rate, to the nearest percent, used in discounting this purchase transaction?
(c)Dubois Inc. loans money to John Kruk Corporation in the amount of $800,000. Dubois accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Dubois needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Dubois will receive on the sale of the note?
(d)Dubois Inc. wishes to accumulate $1,300,000 by December 31, 2024, to retire bonds outstanding. The company deposits $200,000 on December 31, 2014, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,300,000 is available at the end of 2024. (The quarterly deposits will also earn at a rate of 10%, compounded quarterly.) (Round to even dollars.)
P6-10 (Analysis of Lease vs. Purchase)Dunn Inc. owns and operates a number of hardware stores in the
New England region. Recently, the company has decided to locate another store in a rapidly growing area of
. The company is trying to decide whether to purchase or lease the building and related facilities.
Purchase:The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,850,000. An immediate down payment of $400,000 is required, and the remaining $1,450,000 would be paid off over 5 years at $350,000 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $500,000. As the owner of the property, the company will have the following out-of-pocket expenses each period.
Property taxes (to be paid at the end of each year) $40,000
Insurance (to be paid at the beginning of each year) 27,000
Other (primarily maintenance which occurs at the end of each year) 16,000
Lease:First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Dunn Inc. if Dunn will lease the completed facility for 12 years. The annual costs for the lease would be $270,000. Dunn would have no responsibility related to the facility over the 12 years. The terms of the lease are that Dunn would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $100,000 is required when the store is opened. This deposit will be returned at the end of the twelfth year, assuming no unusual damage to the building structure or fixtures.
Which of the two approaches should Dunn Inc. follow? (Currently, the cost of funds for Dunn Inc. is 10%.)
P6-14 (Expected Cash Flows and Present Value)At the end of 2014, Sawyer Company is conducting an impairment test and needs to develop a fair value estimate for machinery used in its manufacturing operations.
Given the nature of Sawyer’s production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Sawyer’s accountants have developed the following cash flow information for the equipment.
Net Cash Flow Probability
Year Estimate Assessment
2015 $6,000 40%
9,000 a 60%
2016 $ (500) 20%
2016 $500 50%
Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2014. Use a 6% discount rate. Assume all cash flows occur at the end of the year.
<pstyle=”color: rgb(136,=”” 136,=”” 136);=”” font-family:=”” verdana,=”” arial,=”” sans-serif;=”” font-size:=”” 11px;=”” background-color:=”” rgb(253,=”” 253,=”” 253);”=””>E7-16 (Transfer of Receivables with Recourse)Beyoncé Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2014. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.
(a)What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?
(b)Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2014, for Beyoncé to record the sale of receivables, assuming the recourse obligation has a fair value of $2,000.
*E 7-23 (Petty Cash)The petty cash fund of Fonzarelli’s Auto Repair Service, a sole proprietorship, contains the following.
1. Coins and currency $ 15.20
2. Postage stamps 2.90
3. An I.O.U. from Richie Cunningham, an
employee, for cash advance 40.00
4. Check payable to Fonzarelli’s Auto Repair from
Pottsie Weber, an employee, marked NSF 34.00
5. Vouchers for the following:
Stamps $ 20.00
Two Rose Bowl tickets for Nick Fonzarelli 170.00
Printer cartridge 14.35 204.35
The general ledger account Petty Cash has a balance of $300.
Prepare the journal entry to record the reimbursement of the petty cash fund.
E 7-25 (Bank Reconciliation and Adjusting Entries)Logan Bruno Company has just received the August 31, 2014, bank statement, which is summarized below.
County National Bank Disbursements Receipts Balance
Balance, August 1 $ 9,369
Deposits during August $32,200 41,569
Note collected for depositor,
including $40 interest 1,040 42,609
Checks cleared during August $34,500 8,109
Bank service charges 20 8,089
Balance, August 31 8,089
The general ledger Cash account contained the following entries for the month of August.
Balance, August 1 10,050 Disbursements in August 34,903
Receipts during August 35,000
Deposits in transit at August 31 are $3,800, and checks outstanding at August 31 total $1,050. Cash on hand at August 31 is $310. The bookkeeper improperly entered one check in the books at $146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.
(a)Prepare a bank reconciliation dated August 31, 2014, proceeding to a correct balance.
(b)Prepare any entries necessary to make the books correct and complete.
(c)What amount of cash should be reported in the August 31 balance sheet?
P7-3 (Bad-Debt Reporting—Aging)Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilow’sAccounts Receivable account was $555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below.
Days Account Outstanding Amount Collection
Less than 16 days $300,000 .98
Between 16 and 30 days 100,000 .90
Between 31 and 45 days 80,000 .85
Between 46 and 60 days 40,000 .80
Between 61 and 75 days 20,000 .55
Over 75 days 15,000 .00
(a)What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
(b)Show how accounts receivable would be presented on the balance sheet.
(c)What is the dollar effect of the year-end bad debt adjustment on the before-tax income? (CMA adapted)
P7-9 (Notes Receivable Journal Entries)On December 31, 2014, Oakbrook Inc. rendered services to BeghunCorporation at an agreed price of $102,049, accepting $40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.
Prepare the entries that would be recorded by Oakbrook Inc. for the sale and for the receipts and interest on the following dates. (Assume that the effective interest method is used for amortization purposes.)
(a)December 31, 2014. (c)December 31, 2016. (e)December 31, 2018.
(b)December 31, 2015. (d)December 31, 2017.
P7-10 (Comprehensive Receivables Problem)Braddock Inc. had the following long-term receivable account balances at December 31, 2013.
Note receivable from sale of division $1,500,000
Note receivable from officer 400,000
Transactions during 2014 and other information relating to Braddock’s long-term receivables were as follows.
1.The $1,500,000 note receivable is dated May 1, 2013, bears interest at 9%, and represents the balance of the consideration received from the sale of Braddock’s electronics division to New York Company. Principal payments of $500,000 plus appropriate interest are due on May 1, 2014, 2015, and 2016. The first principal and interest payment was made on May 1, 2014. Collection of the note installments is reasonably assured.
2.The $400,000 note receivable is dated December 31, 2013, bears interest at 8%, and is due on December 31, 2016. The note is due from Sean May, president of Braddock Inc. and is collateralized by 10,000 shares of Braddock’s common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2014. The quoted market price of Braddock’s common stock was $45 per share on December 31, 2014.
3.On April 1, 2014, Braddock sold a patent to Pennsylvania Company in exchange for a $100,000 zerointerest- bearing note due on April 1, 2016. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2014, was 12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of $40,000 at January 1, 2014, and the amortization for the year ended December 31, 2014, would have been $8,000. The collection of the note receivable from Pennsylvania is reasonably assured.
4.On July 1, 2014, Braddock sold a parcel of land to Splinter Company for $200,000 under an installment sale contract. Splinter made a $60,000 cash down payment on July 1, 2014, and signed a 4-year 11% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125 payable on July 1, 2015, through July 1, 2018. The land could have been sold at an established cash price of $200,000. The cost of the land to Braddock was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.
(a)Prepare the long-term receivables section of Braddock’s balance sheet at December 31, 2014.
(b)Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Braddock’s balance sheet at December 31, 2014.
(c)Prepare a schedule showing interest revenue from the long-term receivables that would appear on Braddock’s income statement for the year ended December 31, 2014.
E8-3 (Inventoriable Costs) Assume that in an annual audit of Harlowe Inc. at December 31, 2014, you find
the following transactions near the closing date.
1. A special machine, fabricated to order for a customer, was finished and specifically segregated in
the back part of the shipping room on December 31, 2014. The customer was billed on that date and
the machine excluded from inventory although it was shipped on January 4, 2015.
2. Merchandise costing $2,800 was received on January 3, 2015, and the related purchase invoice recorded
January 5. The invoice showed the shipment was made on December 29, 2014, f.o.b. destination.
3. A packing case containing a product costing $3,400 was standing in the shipping room when the
physical inventory was taken. It was not included in the inventory because it was marked “Hold for
shipping instructions.” Your investigation revealed that the customer’s order was dated December
18, 2014, but that the case was shipped and the customer billed on January 10, 2015. The product
was a stock item of your client.
4. Merchandise received on January 6, 2015, costing $680 was entered in the purchase journal on
January 7, 2015. The invoice showed shipment was made f.o.b. supplier’s warehouse onDecember 31,
2014. Because it was not on hand atDecember 31, it was not included in inventory.
5. Merchandise costing $720 was received on December 28, 2014, and the invoice was not recorded. You
located it in the hands of the purchasing agent; it was marked “on consignment.”
Assuming that each of the amounts is material, state whether the merchandise should be included in the
client’s inventory, and give your reason for your decision on each item.
P8-6 (Compute FIFO, LIFO, Average-Cost—Periodic and Perpetual) Ehlo Company is a multiproduct
firm. Presented below is information concerning one of its products, the Hawkeye.
Date Transaction Quantity Price/Cost
1/1 Beginning inventory 1,000 $12
2/4 Purchase 2,000 18
2/20 Sale 2,500 30
4/2 Purchase 3,000 23
11/4 Sale 2,200 33
Compute cost of goods sold, assuming Ehlo uses:
(a) Periodic system, FIFO cost flow. (d) Perpetual system, LIFO cost flow.
(b) Perpetual system, FIFO cost flow. (e) Periodic system, weighted-average cost flow.
(c) Periodic system, LIFO cost flow. (f) Perpetual system, moving-average cost flow.
P8-8 (Dollar-Value LIFO) Norman’s Televisions produces television sets in three categories: portable,
midsize, and flat-screen. On January 1, 2014, Norman adopted dollar-value LIFO and decided to use a
single inventory pool. The company’sJanuary 1 inventory consists of:
Category Quantity Cost per Unit Total Cost
Portable 6,000 $100 $ 600,000
Midsize 8,000 250 2,000,000
Flat-screen 3,000 400 1,200,000
During 2014, the company had the following purchases and sales.
Quantity Quantity Selling Price
Category Purchased Cost per Unit Sold per Unit
Portable 15,000 $110 14,000 $150
Midsize 20,000 300 24,000 405
Flat-screen 10,000 500 6,000 600
(Round to four decimals.)
(a) Compute ending inventory, cost of goods sold, and gross profit.
(b) Assume the company uses three inventory pools instead of one. Repeat instruction (a).
E9-3 (Lower-of-Cost-or-Market) Michael Bolton Company follows the practice of pricing its inventory at
the lower-of-cost-or-market, on an individual-item basis.
Item Quantity Cost Cost to Estimated Cost of Completion Normal
No. per Unit Replace Selling Price and Disposal Profit
1320 1,200 $3.20 $3.00 $4.50 $0.35 $1.25
1333 900 2.70 2.30 3.50 0.50 0.50
1426 800 4.50 3.70 5.00 0.40 1.00
1437 1,000 3.60 3.10 3.20 0.25 0.90
1510 700 2.25 2.00 3.25 0.80 0.60
1522 500 3.00 2.70 3.80 0.40 0.50
1573 3,000 1.80 1.60 2.50 0.75 0.50
1626 1,000 4.70 5.20 6.00 0.50 1.00
From the information above, determine the amount of Bolton Company inventory.
E9-17 (Gross Profit Method) Presented below is information related to Aaron Rodgers Corporation for
the current year.
Beginning inventory $ 600,000
Total goods available for sale $2,100,000
Sales revenue 2,500,000
Compute the ending inventory, assuming that (a) gross profit is 45% of sales; (b) gross profit is 60% of cost;
gross profit is 35% of sales; and (d) gross profit is 25% of cost.
P9-7 (Retail Inventory Method) Presented below is information related to Waveland Inc.
Inventory, 12/31/14 $250,000 $ 390,000
Purchases 914,500 1,460,000
Purchase returns 60,000 80,000
Purchase discounts 18,000 —
Gross sales revenue (after employee discounts) — 1,410,000
Sales returns — 97,500
Markups — 120,000
Markup cancellations — 40,000
Markdowns — 45,000
Markdown cancellations — 20,000
Freight-in 42,000 —
Employee discounts granted — 8,000
Loss from breakage (normal) — 4,500
Assuming that Waveland Inc. uses the conventional retail inventory method, compute the cost of its ending
inventory at December 31, 2015.
E13-6 (Compensated Absences)Assume the facts in E13-5 except that Matt Broderick Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation time.
Year in Which Vacation Projected Future Pay Rates
Time Was Earned Used to Accrue Vacation Pay
(a)Prepare journal entries to record transactions related to compensated absences during 2013 and 2014.
(b)Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2013, and 2014.
E13-8 (Payroll Tax Entries)The payroll of YellowCard Company for September 2013 is as follows. Total payroll was $480,000, of which $110,000 is exempt from Social Security tax because it represented amounts paid in excess of $113,700 to certain employees. The amount paid to employees in excess of $7,000 was $400,000. Income taxes in the amount of $80,000 were withheld, as was $9,000 in union dues. The state unemployment tax is 3.5%, but YellowCard Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current FICA tax is 7.65% on an employee’s wages to $113,700 and 1.45% in excess of $113,700. No employee for YellowCard makes more than $125,000. The federal unemployment tax rate is 0.8% after state credit.
Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately.
E13-11 (Warranties)Sheryl Crow Equipment Company sold 500 Rollomatics during 2014 at $6,000 each.During 2014, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
(a)Prepare 2014 entries for Crow using the expense warranty approach. Assume that Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years.
(b)Prepare 2014 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales of warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues to be recognized on the basis of costs incurred and estimated costs.
P13-9 (Premium Entries and Financial Statement Presentation)Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $2.25. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2014 and 2015 are as follows. (All purchases and sales are for cash.)
MP3 codes purchased 250,000 330,000
Candy bars sold 2,895,400 2,743,600
Wrappers redeemed 1,200,000 1,500,000
2014 wrappers expected to be redeemed in 2015 290,000
2015 wrappers expected to be redeemed in 2016 350,000
(a)Prepare the journal entries that should be made in 2014 and 2015 to record the transactions related to the premium plan of the Sycamore Candy Company.
(b)Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2014 and 2015.
P14-2 (Issuance and Redemption of Bonds)Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue $2,000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 10%. Venezuela paid $50,000 in bond issue costs related to the bond sale.
(a)Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013.
(b)Prepare a bond amortization schedule up to and including January 1, 2017, using the effectiveinterest method.
(c)Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare the journal entry to record this redemption.
P14-9 (Entries for Zero-Interest-Bearing Note; Payable in Installments)Sabonis Cosmetics Co. purchased machinery on December 31, 2013, paying $50,000 down and agreeing to pay the balance in four equal installments of $40,000 payable each December 31. An assumed interest of 8% is implicit in the purchase price.
Prepare the journal entries that would be recorded for the purchase and for the payments and interest on the following dates. (Round answers to the nearest cent.)
(a)December 31, 2013. (d)December 31, 2016.
(b)December 31, 2014. (e)December 31, 2017.
(c)December 31, 2015.