Chapter 9: Q10DQ (page 428)
Why are warranty liabilities usually recognized on the balance sheet as liabilities even when they are uncertain?
It is probable that expense related to warranty will be incurred in future, hence warranties liabilities are recorded by the company.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
On January 15, the end of the first biweekly pay period of the year, North Company’s payroll register showed that its employees earned \(35,000 of sales salaries. Withholdings from the employees’ salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, \)6,500 of federal income taxes, \(772.50 of medical insurance deductions, and \)120 of union dues. No employee earned more than $7,000 in this first period. Prepare the journal entry to record North Company’s January
15 (employee) payroll expenses and liabilities. (Round amounts to cents.)
Question: On November 10, 2016, Lee Co. began operations by purchasing coffee grinders for resale. Lee uses the perpetual inventory method. The grinders have a 60-day warranty that requires the company to replace any nonworking grinder. When a grinder is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company’s cost per new grinder is \(24 and its retail selling price is \)50 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 10% of dollar sales. The following transactions and events occurred.
2016
Nov. 16 Sold 50 grinders for \(2,500 cash.
30 Recognized warranty expense related to November sales with an adjusting entry.
Dec. 12 Replaced six grinders that were returned under the warranty.
18 Sold 200 grinders for \)10,000 cash.
28 Replaced 17 grinders that were returned under the warranty.
31 Recognized warranty expense related to December sales with an adjusting entry.
2017
Jan. 7 Sold 40 grinders for $2,000 cash.
21 Replaced 36 grinders that were returned under the warranty.
31 Recognized warranty expense related to January sales with an adjusting entry.
Required
1. Prepare journal entries to record these transactions and adjustments for 2016 and 2017.
2. How much warranty expense is reported for November 2016 and for December 2016?
3. How much warranty expense is reported for January 2017?
4. What is the balance of the Estimated Warranty Liability account as of December 31, 2016?
5. What is the balance of the Estimated Warranty Liability account as of January 31, 2017?
For the year ended December 31, 2017, Lopez Company has implemented an employee bonus program
based on Lopez’s net income, which employees will share equally. Lopez’s bonus expense is computed as
$14,563.
1. Prepare the journal entry at December 31, 2017, to record the bonus due the employees.
2. Prepare the journal entry at January 19, 2018, to record payment of the bonus to employees.
The following monthly data are taken from Ramirez Company at July 31: sales salaries, \(200,000; office
salaries, \)160,000; federal income taxes withheld, \(90,000; state income taxes withheld, \)20,000; Social
Security taxes withheld, \(22,320; Medicare taxes withheld, \)5,220; medical insurance premiums, \(7,000;
life insurance premiums, \)4,000; union dues deducted, \(1,000; and salaries subject to unemployment
taxes, \)50,000. The employee pays 40% of medical and life insurance premiums.
Prepare journal entries to record:
(1) accrued payroll, including employee deductions, for July;
(2) cash payment of the net payroll (salaries payable) for July;
(3) accruedemployer payroll taxes, and
other related employment expenses, for July—assume that FICA taxes are identical to those on employees
and that SUTA taxes are 5.4% and FUTA taxes are 0.6%; and
(4) cash payment of all liabilities related
to the July payroll.
Question: Francisco Company has 10 employees, each of whom earns \(2,800 per month and is paid on the last day of each month. All 10 have been employed continuously at this amount since January 1. On March 1, the following accounts and balances exist in its general ledger:
a. FICA—Social Security Taxes Payable, \)3,472; FICA—Medicare Taxes Payable, \(812. (The balances of these accounts represent total liabilities for boththe employer’s and employees’ FICA taxes for the February payroll only.)
b. Employees’ Federal Income Taxes Payable, \)4,000 (liability for February only). c. Federal Unemployment Taxes Payable, \(336 (liability for January and February together).
d. State Unemployment Taxes Payable, \)2,240 (liability for January and February together). During March and April, the company had the following payroll transactions.
Mar. 15 Issued check payable to Swift Bank, a federal depository bank authorized to accept employers’ payments of FICA taxes and employee income tax withholdings. The \(8,284 check is in payment of the February FICA and employee income taxes.
31 Recorded the journal entry for the March salaries payable. Then recorded the cash payment of the March payroll (the company issued checks payable to each employee in payment of the March payroll). The payroll register shows the following summary totals for the March pay per \)11,200 \(16,800 \)28,000 \(1,736 \)4,000 \(21,858 \) 40 * FICA taxes are Social Security and Medicare, respectively.
31 Recorded the employer’s payroll taxes resulting from the March payroll. The company has a merit rating that reduces its state unemployment tax rate to 4.0% of the first $7,000 paid each employee. The federal rate 0.6%
Apr. 15 Issued check to Swift Bank in payment of the March FICA and employee income taxes.
15 Issued check to the State Tax Commission for the January, February, and March state unemployment taxes. Filed the check and the first-quarter tax return with the Commission.
30 Issued check payable to Swift Bank in payment of the employer’s FUTA taxes for the first quarter of the year.
30 Filed Form 941 with the IRS, reporting the FICA taxes and the employees’ federal income tax withholdings for the first quarter.
Required
Prepare journal entries to record the transactions and events for both March and April.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
