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Chapter 11: Q5SE (page 605)

On January 1, Irving Company purchased equipment of \(280,000 with a long-term note payable. The debt is payable in annual installments of \)56,000 due on December 31 of each year. At the date of purchase, how will Irving Company report the note payable?

Short Answer

Expert verified

Answer

At the time of purchase, $56,000 will be considered as current liability and $224,000 will be considered as long term liability in its balance sheet.

Step by step solution

01

Step-by-step solution

Step 1:Accounting treatment to report the note payable”

Generally, notes payable are long-term but the first installment is due within the 12 months, so first installment should be considered as current liability and rest of the amount be considered as long-term liability.

02

Calculation for long-term liability

Longterm=Purchase-Installments=$280,000-$56,000=$224,000

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Most popular questions from this chapter

Samuel Industries has three employees. Each employee earns two vacation days a month. Samuel pays each employee a weekly salary of $1,250 for a five-day workweek. Requirements

1. Determine the amount of vacation expense for one month.

2. Journalize the entry to accrue the vacation expense for the month.

The general ledger of Seal-N-Ship at June 30, 2018, the end of the company’s fiscal year, includes the following account balances before payroll and adjusting entries.

Accounts Payable \( 114,000

Interest Payable 0

Salaries Payable 0

Employee Income Taxes Payable 0

FICA—OASDI Taxes Payable 0

FICA—Medicare Taxes Payable 0

Federal Unemployment Taxes Payable 0

State Unemployment Taxes Payable 0

Unearned Rent Revenue 7,200

Long-term Notes Payable 210,000

The additional data needed to develop the payroll and adjusting entries at June 30 are as follows:

a. The long-term debt is payable in annual installments of \)42,000, with the next installment due on July 31. On that date, Seal-N-Ship will also pay one year’s interest at 9%. Interest was paid on July 31 of the preceding year. Make the adjusting entry to accrue interest expense at year-end.

b. Gross unpaid salaries for the last payroll of the fiscal year were \(4,700. Assume that employee income taxes withheld are \)910 and that all earnings are subject to OASDI.

c. Record the associated employer taxes payable for the last payroll of the fiscal year, \(4,700. Assume that the earnings are not subject to unemployment compensation taxes

d. On February 1, the company collected one year’s rent of \)7,200 in advance.

Requirements

1. Using T-accounts, open the listed accounts and insert the unadjusted June 30 balances.

2. Journalize and post the June 30 payroll and adjusting entries to the accounts that you opened. Identify each adjusting entry by letter. Round to the nearest dollar.

3. Prepare the current liabilities section of the balance sheet at June 30, 2018.

Accounting for warranties, vacancies and bonuses

McNight Industries completed the following transactions during 2008:

Nov.21Made sales of \(52,000. McNight estimates that warranty expense is 6% of sales.(Record only the warranty expense.)
30Paid \)1,600 to satisfy warranty claims.
Dec.31Estimated vacation benefits expense to be \(6,000
31McNight expected to pay its employees a 3% bonus on net income after deducting the bonus. Net income for the year is \)52,000

Journalize the transactions. Explanations are not required. Round to the nearest dollar.

Question: Recording employee and employer payroll taxes County Company had the following partially completed payroll register:

EarningsWithholdings

Beginning Cumulative Earnings

Current Period Earnings

Ending Cumulative Earnings

OASDI

Medicare

Income

tax

Health

Insurance

United

way

Total

Withholding

Net

pay

Check

No.

Salaries and Wages Expense

\( 77,000

\) 4,500

\( 900

\) 90

\(15

801

112,000

7,200

1,200

144

35

802

48,000

3,300

600

66

0

803

61,000

3,300

850

66

20

804

0

4,500

1,100

90

0

805

\)298,000

\(22,800

\)4,650

\(456

\)70

Requirements

  1. Complete the payroll register. Round to two decimals.
  2. Journalize County Company’s salaries and wages expense accrual for the current pay period.
  3. Journalize County Company’s expenses for employer payroll taxes for the current pay period.
  4. Journalize the payment to employees.
  5. Journalize the payment for withholdings and employer payroll taxes.

Golden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15 work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted employees. The home office staff consists of an accountant and an office manager.

Because employee turnover is high in the construction industry, supervisors hire and fire their own crews. Supervisors notify the office of all personnel changes. Also, supervisors forward the employee W-4 forms to the home office. Each Thursday, the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paychecks for distribution to the workers at 5 p.m.

The company accountant prepares the payroll, including the paychecks. Beavers signs all paychecks. To verify that each construction worker is a bona fide employee, the accountant matches the employee’s endorsement signature on the back of the canceled paycheck with the signature on that employee’s W-4 form.

Requirements

  1. Identify one way that a supervisor can defraud Golden Bear Construction under the present system.

Discuss a control feature that the company can use to safeguard against the fraud you identified in Requirement 1.
See all solutions

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