ADM 1340 Lecture Notes - Lecture 17: Inventory Turnover, Accounts Payable, Accrued Interest

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ADM 1340 Full Course Notes

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Payroll liability types: net pay (what employees receive) > gross pay is the amount employees agree on, but there are deductions gross pay/earnings = salaries + wages. Net pay = gross pay - payroll deductions: employee payroll deductions (like taxes, pensions and employee insurance) Employment insurance (ei) payable: employer payroll obligations (these costs are recorded as an employee bene ts expense), from the employer himself. > form of written notes, often used instead of accounts payable, due for payment within one year are classi ed as current liabilities, can have a oating interest rate (not normally) Interest payable: record payment of note plus interest. > should be included in current liabilities, journal entry is not required. > current liabilities ( rst category under liabilities on sfp) are generally listed in their order of liquidity. Liquidity ratios = the short-term ability of a company to pay its current obligations and to meet unexpected needs for cash.

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The following information about the payroll for the week ended December 30 was obtained from the records of Pharrell Co.: Salaries: Sales salaries $325,000 Warehouse salaries 196,000 Office salaries 131,000 $652,000 Deductions: Income tax withheld $119,000 Social security tax withheld 39,120 Medicare tax withheld 9,780 Retirement savings 14,344 Group insurance 11,736 $193,980 Tax rates assumed: Social security 6% Medicare 1.5% State unemployment (employer only) 5.4% Federal unemployment (employer only) 0.6% Required: 1. Assuming that the payroll for the last week of the year is to be paid on December 31, journalize the following entries (refer to the Chart of Accounts for exact wording of account titles):

CHART OF ACCOUNTS

Pharrell Co.

General Ledger

	ASSETS
110	Cash
111	Accounts Receivable
112	Interest Receivable
113	Notes Receivable
115	Merchandise Inventory
116	Supplies
118	Prepaid Insurance
120	Land
123	Building
124	Accumulated Depreciation-Building
125	Office Equipment
126	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
213	Interest Payable
214	Notes Payable
215	Salaries Payable
216	Social Security Tax Payable
217	Medicare Tax Payable
218	Employees Income Tax Payable
220	Group Insurance Payable
221	Retirement Savings Payable
222	Union Dues Payable
224	Federal Unemployment Tax Payable
225	State Unemployment Tax Payable
226	Vacation Pay Payable
227	Unfunded Pension Liability

	EQUITY
310	Owner, Capital
311	Owner, Drawing
312	Income Summary

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Sales Salaries Expense
521	Warehouse Salaries Expense
522	Office Salaries Expense
524	Depreciation Expense-Building
525	Delivery Expense
526	Repairs Expense
529	Selling Expenses
531	Rent Expense
532	Depreciation Expense-Office Equipment
533	Insurance Expense
534	Supplies Expense
535	Payroll Tax Expense
536	Vacation Pay Expense
537	Pension Expense
538	Cash Short and Over
540	Miscellaneous Expense
710	Interest Expense

A. December 30, to record the payroll. B. December 30, to record the employer's payroll taxes on the payroll to be paid on December 31. Of the total payroll for the last week of the year, $44,000 is subject to unemployment compensation taxes. 2. Assuming that the payroll for the last week of the year is to be paid on January 5 of the following fiscal year, journalize the following entries (refer to the Chart of Accounts for exact wording of account titles): A. On page 11 of the journal: December 30, to record the payroll. B. On page 12 of the journal: January 5, to record the employerâs payroll taxes on the payroll to be paid on January 5. Because it is a new fiscal year, all salaries are subject to unemployment compensation taxes.

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The following accounts, with the balances indicated, appear in the ledger of Garcon Co. on December 1 of the current year:

Account No.	Account Name	Balance
211	Salaries Payable	â
212	Social Security Tax Payable	$9,280
213	Medicare Tax Payable	2,302
214	Employees Federal Income Tax Payable	15,430
215	Employees State Income Tax Payable	13,912
216	State Unemployment Tax Payable	1,340
217	Federal Unemployment Tax Payable	480
218	Bond Deductions Payable	$3,400
219	Medical Insurance Payable	22,200
411	Operations Salaries Expense	920,000
511	Officers Salaries Expense	640,000
512	Office Salaries Expense	160,000
519	Payroll Tax Expense	136,551

The following transactions relating to payroll, payroll deductions, and payroll taxes occurred during December:

On page 10 of the journal:

Dec.	2	Issued Check No. 410 for $3,400 to Jay Bank to purchase U.S. savings bonds for employees.
	2	Issued Check No. 411 to Jay Bank for $27,012 in payment of $9,280 of social security tax, $2,302 of Medicare tax, and $15,430 of employeesâ federal income tax due.
	13	Journalized the entry to record the biweekly payroll. A summary of the payroll record follows:


Salary distribution:
Operations	$42,400
Officers	26,000
Office	6,800	$75,200
Deductions:
Social security tax	$ 4,512
Medicare tax	1,128
Federal income tax withheld	15,040
State income tax withheld	3,384
Savings bond deductions	1,700
Medical insurance deductions	3,700	29,464
Net amount		$45,736

	13	Issued Check No. 420 in payment of the net amount of the biweekly payroll.
	13	Journalized the entry to record payroll taxes on employeesâ earnings of December 13: social security tax, $4,512; Medicare tax, $1,128; state unemployment tax, $350; federal unemployment tax, $115.
	16	Issued Check No. 424 to Jay Bank for $26,320, in payment of $9,024 of social security tax, $2,256 of Medicare tax, and $15,040 of employeesâ federal income tax due.
	19	Issued Check No. 429 to Sims-Walker Insurance Company for $25,900 in payment of the semiannual premium on the group medical insurance policy.

On page 11 of the journal:

Dec.

Journalized the entry to record the biweekly payroll. A summary of the payroll record follows:


Salary distribution:
Operations	$42,000
Officers	26,800
Office	7,000	$75,800
Deductions:
Social security tax	$ 4,548
Medicare tax	1,137
Federal income tax withheld	15,004
State income tax withheld	3,411
Savings bond deductions	1,700	25,800
Net amount		$50,000

	27	Issued Check No. 541 in payment of the net amount of the biweekly payroll.
	27	Journalized the entry to record payroll taxes on employeesâ earnings of December 27: social security tax, $4,548; Medicare tax, $1,137; state unemployment tax, $210; federal unemployment tax, $70.
	27	Issued Check No. 543 for $20,707 to State Department of Revenue in payment of employeesâ state income tax due on December 31.
	31	Issued Check No. 545 to Jay Bank for $3,400 to purchase U.S. savings bonds for employees.
	31	Paid $60,000 to the employee pension plan. The annual pension cost is $80,000. (Record both the payment and unfunded pension liability.)

Required:

Journalize the transactions on pages 10 and 11 of the journal. Refer to the Chart of Accounts for exact wording of account titles.

On page 12 of the journal, journalize the following adjusting entries on December 31 (refer to the Chart of Accounts for exact wording of account titles):

A.	Salaries accrued: operations salaries, $8,590; officers salaries, $5,560; office salaries, $1,450. The payroll taxes are immaterial and are not accrued.
B.	Vacation pay, $15,000.

ultramarinelouse847

Selected transactions of Shadrach Computer Corporation duringNovember and December of 2016 are as follows:

Nov.	1	Borrowed money from the bank byissuing a non-interest-bearing, $58,000, 90-day note. The note isdiscounted on a 12% basis.
	9	Sold 125 computers with a 1-yearassurance-type warranty for $5,600 each on credit (ignore cost ofgoods sold). Past experience indicates that warranty costs average$110 per computer.
	12	Sold 125 software packages at $270each on credit (ignore cost of goods sold). With each softwarepackage, Shadrach offered a premium in the form of a USB drive forthe return of one proof of purchase. The offer expires June 30,2017. The cost of each USB drive is $5, and Shadrach estimates that80% of the premiums will be redeemed; therefore, 100 USB driveswere purchased on credit.
	20	Paid $2,000 in fulfillment of thewarranty agreement on several of the computers sold on November9.
	30	Accrued monthly vacation pay.Shadrach has 80 employees who are each paid an average of $180 perday. Shadrach has a policy of allowing each employee 12 daysâ paidvacation per year; the related liability is recorded on a monthlybasis. Employees are paid monthly.
	30	Paid monthly payroll. Grosssalaries were $430,000. No vacations were taken during November.Income tax withholdings of 20% are applicable to the salaries ofall employees. A F.I.C.A. tax of 8% for both employees andemployers is also applicable. These rates apply to all salariesbecause no employeeâs salary has exceeded the maximum wage limit.The state allows the corporation a 1% unemployment compensationmerit-rating reduction from the normal rate of 5.4%. The federalunemployment rate is 0.6%. Prior to October, each individualemployee had accumulated a gross salary in excess of $7,000 for2016.
Dec.	14	Twenty proofs of purchase werereturned from the November 12 sale.
	29	An individual filed suit againstShadrach for damages caused in a November 5 accident that resultedwhen a member of the sales force hit the individualâs car while onpersonal business. The amount of the suit filed was $1,450. Becausethe employee was on personal business, the companyâs insurancecompany will not pay the claim. In Shadrachâs attorneyâs opinion,the amount of the suit is reasonable; furthermore, the companybelieves it is likely to lose the suit.
	31	Accrued monthly vacation pay.
	31	Paid monthly payroll. Grosssalaries were $433,000. The salaries included $6,500 of vacationpay in the sales force and $3,300 of vacation pay in the officestaff. The F.I.C.A. tax rate still applies to all wages because noemployeeâs salary exceeded the maximum wage limit.
	31	Recorded presidentâs bonus. Thepresident receives a 10% bonus on any income over $240,000, beforededucting income taxes and the bonus. Shadrachâs effective incometax rate is 30%, and income before income taxes and bonus for 2016was $560,000. The bonus will be paid in January 2017.

	Required:
	Prepare journal entries torecord the preceding transactions of Shadrach Computer Corporationfor 2016. Include year-end accruals. Round all calculations to thenearest dollar.

Chart of Accounts

CHARTOF ACCOUNTS

Shadrach Computer Corporation

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
132	Inventory of Premiums
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
221	Bonus Payable
222	Liability for CompensatedAbsences
224	FICA Taxes Payable
225	Federal Income Taxes WithholdingPayable
231	Salaries Payable
240	Estimated Warranty Liability
241	Estimated Premium Liability
245	Estimated Liability fromLawsuit
250	Unearned Revenue
260	Notes Payable
261	Discount on Notes Payable
271	Federal Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
522	Payroll Taxes Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
551	Warranty Expense
552	Premium Expense
559	Miscellaneous Expenses
561	Loss from Accident
910	Income Tax Expense

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ADM 1340 Lecture Notes - Lecture 17: Inventory Turnover, Accounts Payable, Accrued Interest

ADM 1340 Full Course Notes

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