Assignment Due Tues, 2/9
Quiz on Ch. 13-- Text, Study Guide, Ex. & Prob.
Read Ch. 14-- Long Term Liabilities
Regular vs. Discounted N/P
Discounting (removal of interest at inception
of transaction) increases the true rate paid.
It raises the rate from the bank discount rate
to the actual or effective rate.
Ex: $5,000 one year 8% Note
Eff Rate
Regular basis = 400 / 5,000 = 8%
Discount basis= 400 / 4,600 =
8.7%
10
• Payroll gives rise to a series of current
liabilities.
– Withholdings
– Unemployment insurance, disability
– Employee authorized deductions
– Net payroll
– Social Security Taxes (FICA plus
Medicare) (page 656)
• Employee and employer portions (matching).
• FICA 6.2% + Medicare 1.45% = 7.65% (will
vary over time).
• FICA first $65,400; Medicare no ceiling (will
vary over time).
20
– Unemployment Insurance:
• FUI (Federal Unemployment Insurance) 6.2% first
$7,000.
• SUI (State Unemployment Insurance), first $7,000,
rate by individual company related to employment
history. There is a maximum offset to the federal
rate of 5.4%.
21
Gross Payroll
XX
FICA withholdings (employee) (payable)
Federal & State withholdings (payable)
Other withholdings, stock options, etc. (Pay)
Net Payroll Payable
Payroll Tax Expense
XX
XX
XX
XX
XX
FICA payable (employer)
XX
FUI payable
XX
SUI payable
XX
Disability payable
XX
22
Accounting for Warranties
1. Cash Basis (IRS) vs. Accrual basis (GAAP)
2. Accrual Basis is called the ---------Expense Warranty Approach
Ex 10 Expense vs. Cash Basis… Note the Adjusting JE
Ex. 11(a)
3. Sales Warranty Approach (Optional Extended Warranty)
Ex. 11(b)
E13-10 (Warranties)
Dookie Company sold 200 copymaking machines in 1998 for
$4,000 each. Each unit included a one-year warranty. Maintenance on
each machine during the warranty period averages $330.
Required:
(a) Prepare 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 1998 were $17,000
(b) On the basis of the data above, prepare the appropriate entries,
assuming that the cash basis method is used.
Contingencies-- Premiums p. 666
Fluffy Cakemix Co offers a mixing bowl for . 25 and 10 box tops
The bowls cost Fluffy .75 each
300,000 boxes of cake mix were sold
60,000 boxtops redeemed
1. What is Premium Expense for the year?
2. What is the appropriate balance in
Estimated Liability for Premiums at year-end?
Do E13-13
Appendix 13A, p. 674-- Computation of Employees’ Bonuses
1. Bonus Depends on Terms of Contract
2. Solving a Set of Simultaneous Equations...
See E13-20
Like Agreement Provides for deducting both tax and bonus to
arrive at the income figure on which bonus is computed.
THE END