ACC3033 Intermediate Accounting: Chapter 13 (E13-2, E13-5, E13-6, P13-2 and P13-4)

ACC3033 Intermediate Accounting
Chapter 13: E13-2, E13-5, E13-6, P13-2 and P13-4

E13-2 Accounts and Notes Payable
The following are selected 2014 transactions of Sean Astin Corporation.
Sep 1 Purchased inventory from Encino Company on account for $50,000 Astin records purchases gross and uses a periodic inventory system
Oct 1 Issued a $50,000 12-month,8% note to Encino in payment of account.
Oct 1 Borrowed $50,000 from the Shore Bank by signing a 12-month, zero-interest-bearing $54,000 note.

Instructions:
(a) Prepare journal entries for the selected transactions above.
(b) Prepare adjusting entries at December 31.
(c) Compute the total net liability to be reported on the December 31 balance sheet for
(1) the interest-bearing note.
(2) the zero-interest-bearing note.

E13-5 Compensated Absences
Matt Broderick Company began operations on January 2, 2013. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.
Actual Hourly Wage Rate Vacation Days Used by Each Employee Sick Days Used by Each Employee
2013 2014 2013 2014 2013 2014
$10.00 $11.00 0 9 4 5

Matt Broderick Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.

Instructions:
1. Prepare journal entries to record transactions related to compensated absences during 2013 and 2014.(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
2. Compute the amounts of any liability for compensated absences that should be presented on the balance sheet at December 31, 2013 and 2014.

E13-6 Compensated Absences
Assume the facts in the preceding exercise, 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 Time Was Earned Projected Future Pay Rates Used to Accrue Vacation Pay
2013 $10.75
2014 $11.60

Instructions:
(1) Prepare journal entries to record transactions related to compensated absences during 2013 and 2014.
(2) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2013, and 2014.

P13-2 Liability Entries and Adjustments
Listed below are selected transactions of Schultz Department Store for the current year ending December 31.
1. On December 5, the store received $500 from the Jackson Players as a deposit to be returned after certain furniture to be used in stage production was returned on January 15.
2. During December, cash sales totaled $834,750 which includes the 5% sales tax that must be remitted to the state by the fifteenth day of the following month.
3. On December 10, the store purchased for cash three delivery trucks for $99,000 The trucks were purchased in a state that applies a 5% sales tax.
4. The store determined it will cost $100,000 to restore the area surrounding one of its store parking lots, when the store is closed in 2 years. Schultz estimates the fair value of the obligation at December 31 is $84,000

Instructions:
Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting entries relative to the transactions that would be required to present fair financial statements at December 31. Date each entry. For simplicity, assume that adjusting journal entries are recorded only once a year on December 31.
P13-4 Payroll Tax Entries
Below is a payroll sheet for Otis Import Company for the month of September 2014. The company is allowed a 1.00% unemployment compensation rate by the state; the federal unemployment tax rate is 0.80% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of $110,100. In addition, 1.45% is charged both employer and employee for an employee’s wages in excess of $110,100 per employee.
Name Earnings to Aug 31 September Earnings Income Tax Witholding FICA State U.C. Federal U.C.
B.D. Williams 6,800 800
D. Prowse 6,300 700
K. Baker 7,600 1,100
F. Oz 13,600 1,900
A. Daniels 105,000 15,000
B. Mayhew 112,000 16,000

Instructions:
(a) Complete the payroll sheet and make the necessary entry to record the payment of the payroll.
(b) Make the entry to record the payroll tax expenses of Otis Import Company.
(c) Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month.
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