Book these from the perspective of the buyer and the seller: Apr 19 Spoke Co. sold $80,000 in Merchandise to Bryden Co. on account, n/30 (Cost of Goods Sold was $50,000 ) May19Aug17Brydensignedan$80,00090-day,10%noteasanextensionoftheA/RBrydenpaidSpokeCo.thematurityvalue Griffin Enterprises issues a $660,000,45-day, 4% note to Romo Industries for merchandise inventory. Required: A. Journalize Griffin Enterprises' entries to record (refer to the company's Chart of Accounts for exact wording of account titles): 1. the issuance of the note on January 1. 2. the payment of the note at maturity. Assume a 360-day year. B. Journalize Romo Industries' entries to record (refer to the company's Chart of Accounts for exact wording of account titles): 1. the receipt of the note on January 1 . 2. the receipt of the payment of the note at maturity. Assume a 360-day year. Non-Interest-Bearing Notes Payable - Discounted Note Terms: Discount Discount Rate Common when money is borrowed from the bank to have a non-interest-bearing note The interest is deducted from the cash proceeds received on the note. At maturity, only the face value of the note is paid. Example: Borrowed $7,500 by signing 90 day non-interest-bearing note discounted at 12%. Step 1: Calculate the Discount on the Note Discount = Face x Discount Rate x Time Period (Discount Rate = the interest the bank is charging on the note) ($7,50012%90/360=$225) Step 2: Calculate the Cash Proceeds Received on the Note Proceeds = Face Discount Example: ($7,500225=$7,275) Sted 3: Record the liabilitv resulting from the note and the cash received Question: Would you rather borrow $10,000 by issuing a 90 day 15% note or a 90 day non-interest bearing note discounted at 15% ? Interest cost either way is $375 BUT with a non-interest bearing note you only receive $9,625 at the beginning. $375/$10,000360/90=15%$375/$9,625360/90=15.6% Juno issued a 120 day note for $120,000 to Thor for merchandise inventory. The note is discounted 10% Journalize the transaction for both Juno and Thor. Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies Contingent Liabilities An obligation that (1) resulted from a past transaction but is (2) contingent on a future event. ONLY RECORDED in the accounting records if they are probable and the amount is estimable. Other contingent liabilities are simply disclosed in the financial statements. Recommendations on Pending Litigation must come from the company's legal counsel. We Live in a Litigious Society Warranties The cost of repairs made under warranties must be recorded as an expense in the same period as the sales revenue is recognized. Since warranty repairs are often not made until months or years after the sale oceurs, these potential warranty costs must be estimated and accrued. The entry to accrue warranty costs is as follows: Product Warranty Expense. XXX Product Warranty Payable. XXX Example: Jet-Clean sold washing machines totaling $1 million during 2019. Each washing machine carries a 3-year warranty. Jet-Clean estimates that warranty repairs on the washing machines will cost 1% of the sales price. Payroll Liabilities Payroll is often the largest expense for most service businesses Payroll Department is often segregated from the rest of Accounting. Requires controls and honesty. Terminology Gross Pay - the expense of the employer Net Pay Regular Pay Overtime Pay Exempt employees are exempt from the Fair Labors Standards Act requiring that employees be paid 11/2 times the regular wage rate for all hours worked in excess of 40 hours per week. (a.k.a. Salaried employees) Non-exempt employees (a.k.a. hourly employees) receive an overtime differential. FICA Tax FICA - Federal Insurance Contributions Act. Social Security and Medicare. Tax rates are set by Congress, and they may change. The textbook uses a social security rate of 6% on all earnings (Wrong. Social Security is 6.2% of the first $132.900 (in 2019) of earnings.) Medicare rate of 1.5% on all earnings. (Wrong Medicare is 1.45\%). Federal Income Tax The amount withheld for federal income tax depends on your tax filing status (married, single, ete.) and the number of withholding allowances claimed (one for yourself, one for a spouse, and one for cach dependent). W-4 form. The IRS publishes withholding tables An employee earns $32 per hour and 1.5 times that rate for all hours in excess of 40 hours per week. Assume that the employee worked 55 hours during the week. Assume further that the social security tax rate was 6.0%, the Medicare tax rate was 1.5%, and federal income tax to be withheld was $398. Accounting 1A Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies a. Determine the gross pay for the week. b. Determine the net pay for the week. K. Mello Company has three employees-a consultant, a computer programmer, and an administrator. The following payroll information is available for each employee: For hourly employees, overtime is paid for hours worked in excess of 40 hours per week. For the current pay period, the computer programmer worked 48 hours and the administrator worked 51 hours. Assume that the social security tax rate was 6.0%, and the Medicare tax rate was 1.5%. Determine the gross pay and the net pay for each of the three employees for the current pay period. Journalize on the following page Employer's Payroll Taxes FICA - employer matches the FICA expense you pay. (If you are self employed you have to pay the employee and employer side of FICA.) SUTA - State Unemployment Insurance. Specified by each state. It is a percentage on the first $7,000 thousand of earnings. ONLY PAID BY EMPLOYER FUTA - Federal Unemployment Insurance. Specified by the Federal Government. It is a percentage on the first $7,000 thousand of earnings. ONLY PAID BY EMPLOYER. Payroll requires two separate journal entries: Entrv 1 - Emnlovee Wages (salarv exnense) En According to a summary of the payroll of Murtagh Co., $750,000 was subject to the 6.0% social security tax and the 1.5% Medicare tax. Also, $50,600 was subject to state and federal unemployment taxes. Federal Income Tax withheld was $140,000. Required: A. Calculate the employees and employer's payroll taxes, using the following rates: state unemployment, 5.4%; federal unemployment, 0.8%. B. On December 31 , journalize both the salaries expense and the payroll tax expense Chapter 10 - Liabilities: Current, Installment Notes and Contingencies Reset of Payroll Tax Limits The first paycheck of the new year starts with the Social Security, FUTA, and SUTA limits set at 0 . Even if the earnings relate to the prior year. (i.e. Payday is January 2. Even though the earnings were from last year, all the limits reset. This will cause Net pay for employees to be lower presuming some have met their FICA limit. It will cause the company to have higher Payroll tax expense. (This is a Homework issue) 1. Assuming that the payroll for the last week of the year is to be paid on December 31 , journalize the following entries a. December 30, to record the payroll. Include the year when enter the date in the journal. 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, $35,000 is subject to unemployment compensation taxes. 2. Assuming that the payroll for the last weck of the year is to be paid on January 5 of the following fiscal year, journalize the following entries a. December 30 , to record the payroll. Include the year when enter the date in the joumal. b. January 5 , to record the employer's payroll taxes on the payroll to be paid on January 5 . Because it is a new fiseal year, all $675,000 in salaries is subject to unemployment compensation taxes. The following items were selected from among the transactions completed by Aston Martin Inc. Apr. 15 Borrowed $225,000 from Audi Company, issuing a 30-day, 6\% note for that amount. May 1 Purchased equipment by issuing a $320,000,180-day note to Spyder Manufacturing Co., which discounted the note at the rate of 6%. 15 Paid Audi Company the interest due on the note of April 15 and renewed the loan by issuing a new 60-day, 8% note for $225,000. (Record both the debit and credit to the notes payable account.) Jul. 14 Paid Audi Company the amount due on the note of May 15. Aug. 16 Purchased merchandise on account from Exige Co., $90,000, terms, n/30. Sep. 15 Issued a 45-day, 6% note for $90,000 to Exige Co., on account. Oct. 28 Paid Spyder Manufacturing Co. the amount due on the note of May 1. 30 Paid Exige Co. the amount owed on the note of September 15. Nov. 16 Purchased store equipment from Gallardo Co. for $450,000, paying $50,000 and issuing a series of twenty 9% notes for $20,000 each, coming due at 45 -day intervals. Dec. 16 Paid the amount due Gallardo Co. on the first note in the series issued on Nov. 16. 28 Settled a personal injury lawsuit with a customer for $87,500, to be paid in January. Aston Martin Inc. accrued the loss in a litigation claims payable account. 1. Journalize the transactions. 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year A. Product warranty cost, $26,800. B. Interest on the 19 remaining notes owed to Gallardo Co. Assume a 360-day year. Accounting 1A Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies