ADM 1340 Lecture Notes - Lecture 10: Unemployment Benefits, Inventory Turnover, Pension

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9 May 2016

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ADM 1340 Full Course Notes

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Liabilities are present obligations that result from past transactions. we distinguish b/w: current liabilities. Debt that will be paid within 1 year from: Through the creation of other current liabilities (note payable: non-current liabilities. Debts that do not meet both of the aforementioned criteria. Pre-authorization by the bank that allows the companies to borrow money up to a pre-set limit when it is needed. Interest is usually charged at a floating (variable) interest rate on any amounts used from the line of credit. Security, called collateral, is usually required by the bank as protection in the even of default on the loan. A bank indebtedness is a negative or credit bank balance (debit to the bank) which is reported as a current liability on the statement of financial position. Retailer collects sales tax from the customer when sale occurs and remits the tax to the federal and provincial collecting authorities (usually.

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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 10: Unemployment Benefits, Inventory Turnover, Pension

ADM 1340 Full Course Notes

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