Copperfield and Company You've just started your first accounting job, as the accounts payable and payroll clerk for Copperfield and Company, a provider of delicate wine glasses to restaurants. Your predecessor left the job suddenly, and was not able to complete all the tasks before leaving. You need to get up to speed and complete the unfinished tasks as soon as possible. Your tasks on your first day are the following: 1. Review the payroll journal entries made by your predecessor. 2. Compute the relevant amounts for the company's short-term note payable and determine whether your predecessor's journal entries are correct. 3. Confirm the journal entry for this year's payment on an installment note. 4. Make a recommendation as to whether the company should journalize any warranty expense for the month. You decide to get started - the sooner the better! Chart of Accounts ASSETS 110 Cash REVENUE 410 Sales Revenue 112 Accounts Receivable 610 Interest Income 113 Interest Receivable EXPENSES 114 Notes Receivable 115 Inventory 510 Cost of Goods Sold 520 Salaries Expense 117 Supplies 118 Prepaid Insurance 120 Land 521 Wages Expense 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation Office Equipment 523 Delivery Expense 524 Depreciation Expense-Building 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 Pension Expense 538 Cash Short and Over LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Interest Payable 215 Notes Payable 216 Social Security Tax Payable 539 Warranty Expense 540 Miscellaneous Expense 710 Interest Expense 217 Medicare Tax Payable 218 Employees Federal Income Tax Payable 219 Employees State Income Tax Payable 220 Retirement Contributions Payable 221 Charitable Contributions Payable Chart of Accounts 126 Accumulated Depreciation Office Equipment 531 Rent Expense 532 Depreciation Expense-Office Equipment LIABILITIES 533 Insurance Expense 534 Supplies Expense 535 Payroll Tax Expense 536 Pension Expense 538 Cash Short and Over 539 Warranty Expense 210 Accounts Payable 211 Salaries Payable 213 Interest Payable 215 Notes Payable 216 Social Security Tax Payable 217 Medicare Tax Payable 218 Employees Federal Income Tax Payable 219 Employees State Income Tax Payable 220 Retirement Contributions Payable 221 Charitable Contributions Payable 222 Medical Insurance Payable 540 Miscellaneous Expense 710 Interest Expense 224 Federal Unemployment Tax Payable 225 State Unemployment Tax Payable 228 Warranty Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary Payroll The following payroll journal entries for Oct. 15 were made by your predecessor. For FICA tax, assume that the social security rate is 6.0% and the Medicare rate is 1.5%. The state and federal unemployment tax rates are 5.4% and 0.8%, respectively. The company offers 401k plans to employees. Review the journal entries, then answer the questions that follow. PAGE 32 GENERAL JOURNAL ACCOUNTING EQUATION ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY DATE Oct. 15 Salaries Expense 568,800.00 Wages Expense 151,200.00 Social Security Tax Payable 43,200.00 Medicare Tax Payable 10,800.00 Employees Federal Income Tax Payable 129,600.00 Medical Insurance Payable 79,200.00 Retirement Contributions Payable 108,000.00 Salaries Payable 349,200.00 15 55,271.00 Payroll Tax Expense Social Security Tax Payable 43,200.00 10,800.00 Medicare Tax Payable Federal Unemployment Tax Payable 164.00 State Unemployment Tax Payable 1,107.00 In order to confirm the previous clerk's payroll calculations, you have been asked to supply the following amounts based on your review of the payroll entries. These amounts will be checked against the company records and investigated further if necessary. 1. Determine the payroll amount subject to federal and state unemployment taxes in this payroll $ 2. What is the total payroll for Copperfield and Company shown in these journal entries? 3. What is Copperfield and Company's share of FICA taxes in this payroll? Short-Term Note Payable Copperfield and Company issued a 90-day, 5.00% note for $180,000 to a creditor on account. The previous clerk entered the following journal entries to record the note on July 10, and the payment of the note at maturity PAGE 25 GENERAL JOURNAL ACCOUNTING EQUATION ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY DATE Jul. 10 Accounts Payable 180,000.00 Notes Payable 180,000.00 Notes Payable 189,000.00 Accounts Payable 180,000.00 Interest Expense 9,000.00 You notice that the journal entry for recording the note on July 10 is correct, but the entry for the payment of the note at maturity (including interest) did not have a date and was not correct. Journalize the payment of the note at maturity as it should have been journalized. Don't forget to include the date. Assume a 360-day year. PAGE 25 GENERAL JOURNAL ACCOUNTING EQUATION DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY Warranty Copperfield and Company has decided to provide a warranty on its products. The previous clerk left a note with the files on this new warranty on glass breakage, deciding that an entry for warranty expense was not necessary, with the following reasoning: "Our product is the finest in the world, and thus the contingency of a warranty replacement for breakage is remote. Under accounting standards, the proper treatment for a remote likelihood of occurrence is to take no action. Accordingly, in my professional judgment, no journal entry should be made for warranty expense." You should review the previous clerk's notes and evaluate the decision. After refreshing your memory on the treatment of contingent liabilities, what action will you take? Journalize an adjusting entry debiting Warranty Expense and crediting Warranty Payable. Assume that a reasonable estimate of the warranty cost can be determined by an examination of prior breakage and replacement data. Make no entry, but disclose the possible warranty liability amount in the notes to the company financial statements. Since there's no way to accurately determine the amount of breakage that might occur, no entry or disclosure is required. Make no entry, the previous clerk is correct that there is a remote chance of any breakage. Copperfield and Company You've just started your first accounting job, as the accounts payable and payroll clerk for Copperfield and Company, a provider of delicate wine glasses to restaurants. Your predecessor left the job suddenly, and was not able to complete all the tasks before leaving. You need to get up to speed and complete the unfinished tasks as soon as possible. Your tasks on your first day are the following: 1. Review the payroll journal entries made by your predecessor. 2. Compute the relevant amounts for the company's short-term note payable and determine whether your predecessor's journal entries are correct. 3. Confirm the journal entry for this year's payment on an installment note. 4. Make a recommendation as to whether the company should journalize any warranty expense for the month. You decide to get started - the sooner the better! Chart of Accounts ASSETS 110 Cash REVENUE 410 Sales Revenue 112 Accounts Receivable 610 Interest Income 113 Interest Receivable EXPENSES 114 Notes Receivable 115 Inventory 510 Cost of Goods Sold 520 Salaries Expense 117 Supplies 118 Prepaid Insurance 120 Land 521 Wages Expense 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation Office Equipment 523 Delivery Expense 524 Depreciation Expense-Building 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 Pension Expense 538 Cash Short and Over LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Interest Payable 215 Notes Payable 216 Social Security Tax Payable 539 Warranty Expense 540 Miscellaneous Expense 710 Interest Expense 217 Medicare Tax Payable 218 Employees Federal Income Tax Payable 219 Employees State Income Tax Payable 220 Retirement Contributions Payable 221 Charitable Contributions Payable Chart of Accounts 126 Accumulated Depreciation Office Equipment 531 Rent Expense 532 Depreciation Expense-Office Equipment LIABILITIES 533 Insurance Expense 534 Supplies Expense 535 Payroll Tax Expense 536 Pension Expense 538 Cash Short and Over 539 Warranty Expense 210 Accounts Payable 211 Salaries Payable 213 Interest Payable 215 Notes Payable 216 Social Security Tax Payable 217 Medicare Tax Payable 218 Employees Federal Income Tax Payable 219 Employees State Income Tax Payable 220 Retirement Contributions Payable 221 Charitable Contributions Payable 222 Medical Insurance Payable 540 Miscellaneous Expense 710 Interest Expense 224 Federal Unemployment Tax Payable 225 State Unemployment Tax Payable 228 Warranty Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary Payroll The following payroll journal entries for Oct. 15 were made by your predecessor. For FICA tax, assume that the social security rate is 6.0% and the Medicare rate is 1.5%. The state and federal unemployment tax rates are 5.4% and 0.8%, respectively. The company offers 401k plans to employees. Review the journal entries, then answer the questions that follow. PAGE 32 GENERAL JOURNAL ACCOUNTING EQUATION ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY DATE Oct. 15 Salaries Expense 568,800.00 Wages Expense 151,200.00 Social Security Tax Payable 43,200.00 Medicare Tax Payable 10,800.00 Employees Federal Income Tax Payable 129,600.00 Medical Insurance Payable 79,200.00 Retirement Contributions Payable 108,000.00 Salaries Payable 349,200.00 15 55,271.00 Payroll Tax Expense Social Security Tax Payable 43,200.00 10,800.00 Medicare Tax Payable Federal Unemployment Tax Payable 164.00 State Unemployment Tax Payable 1,107.00 In order to confirm the previous clerk's payroll calculations, you have been asked to supply the following amounts based on your review of the payroll entries. These amounts will be checked against the company records and investigated further if necessary. 1. Determine the payroll amount subject to federal and state unemployment taxes in this payroll $ 2. What is the total payroll for Copperfield and Company shown in these journal entries? 3. What is Copperfield and Company's share of FICA taxes in this payroll? Short-Term Note Payable Copperfield and Company issued a 90-day, 5.00% note for $180,000 to a creditor on account. The previous clerk entered the following journal entries to record the note on July 10, and the payment of the note at maturity PAGE 25 GENERAL JOURNAL ACCOUNTING EQUATION ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY DATE Jul. 10 Accounts Payable 180,000.00 Notes Payable 180,000.00 Notes Payable 189,000.00 Accounts Payable 180,000.00 Interest Expense 9,000.00 You notice that the journal entry for recording the note on July 10 is correct, but the entry for the payment of the note at maturity (including interest) did not have a date and was not correct. Journalize the payment of the note at maturity as it should have been journalized. Don't forget to include the date. Assume a 360-day year. PAGE 25 GENERAL JOURNAL ACCOUNTING EQUATION DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY Warranty Copperfield and Company has decided to provide a warranty on its products. The previous clerk left a note with the files on this new warranty on glass breakage, deciding that an entry for warranty expense was not necessary, with the following reasoning: "Our product is the finest in the world, and thus the contingency of a warranty replacement for breakage is remote. Under accounting standards, the proper treatment for a remote likelihood of occurrence is to take no action. Accordingly, in my professional judgment, no journal entry should be made for warranty expense." You should review the previous clerk's notes and evaluate the decision. After refreshing your memory on the treatment of contingent liabilities, what action will you take? Journalize an adjusting entry debiting Warranty Expense and crediting Warranty Payable. Assume that a reasonable estimate of the warranty cost can be determined by an examination of prior breakage and replacement data. Make no entry, but disclose the possible warranty liability amount in the notes to the company financial statements. Since there's no way to accurately determine the amount of breakage that might occur, no entry or disclosure is required. Make no entry, the previous clerk is correct that there is a remote chance of any breakage