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Chapter 11: 3RQ (page 603)
How is sales tax recorded? Is it considered an expense of a business? Why or why not?
No, sales tax is not considered an expense of a business.
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Logan White is general manager of Valuepoint Salons. During 2018, White worked for the company all year at a \(13,600 monthly salary. He also earned a year-end bonus equal to 15% of his annual salary.
White’s federal income tax withheld during 2018 was \)1,360 per month, plus \(4,876 on his bonus check. State income tax withheld came to \)150 per month, plus \(60 on the bonus. FICA tax was withheld on the annual earnings. White authorized the following payroll deductions: Charity Fund contribution of 1% of total earnings and life insurance of \)40 per month.
Valuepoint incurred payroll tax expense on White for FICA tax. The company also paid state unemployment tax and federal unemployment tax.
Requirements
1. Compute White’s gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.
2. Compute Valuepoint’s total 2018 payroll tax expense for White.
3. Make the journal entry to record Valuepoint’s expense for White’s total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.
4. Make the journal entry to record the accrual of Valuepoint’s payroll tax expense for White’s total earnings.
5. Make the journal entry for the payment of the payroll withholdings and taxes.
Lucy Rose works at College of Fort Worth and is paid $12 per hour for a 40-hour workweek and time-and-a-half for hours above 40.
Requirements
1. Compute Rose’s gross pay for working 60 hours during the first week of February.
2. Rose is single, and her income tax withholding is 15% of total pay. Rose’s only payroll deductions are payroll taxes. Compute Rose’s net (take-home) pay for the week. Assume Rose’s earnings to date are less than the OASDI limit.
3. Journalize the accrual of wages expense and the payment related to the employment of Lucy Rose.
The income statement for California Communications follows. Assume California Communications signed a 3-month, 9%, $3,000 note on June 1, 2018, and that this was the only note payable for the company.
Requirements
1. Fill in the missing information for California’s year ended July 31, 2018, income statement. Round to the nearest dollar.
2. Compute the times-interest-earned ratio for the company. Round to two decimals.
The following transactions of Jasmine Reef occurred during 2018:
Apr. 30 Reef is party to a patent infringement lawsuit of \(190,000. Reef’sattorney is certain it is remote that Reef will lose this lawsuit.
Jun. 30 Estimated warranty expense at 2% of sales of \)350,000.
Jul. 28 Warranty claims paid in the amount of \(5,500.
Sep. 30 Reef is party to a lawsuit for copyright violation of \)80,000. Reef’sattorney advises that it is probable Reef will lose this lawsuit. Theattorney estimates the loss at \(80,000.
Dec. 31 Reef estimated warranty expense on sales for the second half of the yearof \)510,000 at 2%.
Requirements
1. Journalize required transactions, if any, in Reef ’s general journal. Explanations arenot required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balanceof $0?
Question:The income statement for Vermont Communications follows. Assume VermontCommunications signed a 3-month, 3%, \(6,000 note on June 1, 2018, and that thiswas the only note payable for the company.
Vermont Communications | ||
Income Statement | ||
Year Ended July 31, 2018 | ||
Net Sales Revenue | \) 26,500 | |
Cost of Goods Sold | 12,200 | |
Gross Profit | 14,300 | |
Operating Expenses: | ||
Selling Expenses | \( 690 | |
Administrative Expenses | 1,550 | |
Total Operating Expenses | 2,240 | |
Operating Income | 12,060 | |
Other Income and (Expenses): | ||
Interest Expense | ? | |
Total Other Income and (Expenses) | ? | |
Net Income before Income Tax Expense | ? | |
Income Tax Expense | 2,410 | |
Net Income | \) ? | |
Requirements
1. Fill in the missing information for Vermont’s year ended July 31, 2018, incomestatement. Round to the nearest dollar.
2. Compute the times-interest-earned ratio for the company. Round to twodecimals.
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