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! Copperfield and Company General Ledger ASSETS REVENUE 110 Cash 410 Sales 610 Interest Revenue 112 Accounts Receivable 113 Interest Receivable 114 Notes Receivable 115 Inventory 117 Supplies 118 Prepaid Insurance 120 Land 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation Office Equipment EXPENSES 510 Cost of Goods Sold 520 Sales Salaries Expense 521 Factory Wages Expense 522 Officers Salaries Expense 523 Delivery Expense 524 Depreciation Expense-Building 526 Repairs Expense 529 Selling Expenses 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Supplies Expense LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Interest Payable 533 Insurance Expense 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 224 Federal Unemployment Tax Payable 225 State Unemployment Tax Payable 228 Product Warranty Payable 534 Supplies Expense 535 Payroll Tax Expense 536 Pension Expense 538 Cash Short and Over 539 Product Warranty Expense 540 Miscellaneous Expense 710 Interest Expense EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary 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 an 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 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Oct. 15 Sales Salaries Expense 145,500.00 2 Officers Salaries Expense 523,800.00 3 Office Salaries Expense 97,000.00 1 4 Factory Wages Expense 203,700.00 5 Social Security Tax Payable 58,200.00 1 6 6 Medicare Tax Payable 14,550.00 1 7 174,600.00 1 Employees Federal Income Tax Payable Medical Insurance Payable 8 106,700.00 1 9 Retirement Contributions Payable 145,500.00 1 10 470,450.00 1 11 Salaries Payable 15 Payroll Tax Expense Social Security Tax Payable 74,207.00 12 58,200.00 1 13 14,550.00 14 Medicare Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable 188.00 1 15 1,269.00 1 16 15 Pension Expense 87,300.00 17 Cash 87,300.00 1 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? S 4. How much has Copperfield and Company contributed to employee 401k plans in this payroll? Copperfield and Company issued a 90-day, 5.00% note for $190,000 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 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY Jul. 10 Accounts Payable 190,000.00 2 Notes Payable 190,000.00 1 3 Notes Payable 199,500.00 Accounts Payable 190,000.00 1 5 Interest Expense 9,500.00 1 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 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 The following journal entry was made by your predecessor to record the annual payment on a 5%, 10-year installment note. PAGE 22 JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 Oct. 1 Interest Expense 710 203,264.00 2 Notes Payable 215 499,298.00 3 Cash 110 702,562.00 Using the information provided, compute the following amounts. 1. What was the carrying amount (book value) of the installment note before the payment on October 1? 2. What portion of next year's payment will be interest? (Round the amount to the nearest dollar.) 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? Since there's no way to accurately determine the amount of breakage that might occur, no entry or disclosure is required. Journalize an adjusting entry debiting Product Warranty Expense and crediting Product Warranty Payable. Assume that a reasonable estimate of the warranty cost can be determined by an examination of prior breakage and replacement data. 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! Copperfield and Company General Ledger ASSETS REVENUE 110 Cash 410 Sales 610 Interest Revenue 112 Accounts Receivable 113 Interest Receivable 114 Notes Receivable 115 Inventory 117 Supplies 118 Prepaid Insurance 120 Land 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation Office Equipment EXPENSES 510 Cost of Goods Sold 520 Sales Salaries Expense 521 Factory Wages Expense 522 Officers Salaries Expense 523 Delivery Expense 524 Depreciation Expense-Building 526 Repairs Expense 529 Selling Expenses 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Supplies Expense LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Interest Payable 533 Insurance Expense 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 224 Federal Unemployment Tax Payable 225 State Unemployment Tax Payable 228 Product Warranty Payable 534 Supplies Expense 535 Payroll Tax Expense 536 Pension Expense 538 Cash Short and Over 539 Product Warranty Expense 540 Miscellaneous Expense 710 Interest Expense EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary 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 an 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 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Oct. 15 Sales Salaries Expense 145,500.00 2 Officers Salaries Expense 523,800.00 3 Office Salaries Expense 97,000.00 1 4 Factory Wages Expense 203,700.00 5 Social Security Tax Payable 58,200.00 1 6 6 Medicare Tax Payable 14,550.00 1 7 174,600.00 1 Employees Federal Income Tax Payable Medical Insurance Payable 8 106,700.00 1 9 Retirement Contributions Payable 145,500.00 1 10 470,450.00 1 11 Salaries Payable 15 Payroll Tax Expense Social Security Tax Payable 74,207.00 12 58,200.00 1 13 14,550.00 14 Medicare Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable 188.00 1 15 1,269.00 1 16 15 Pension Expense 87,300.00 17 Cash 87,300.00 1 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? S 4. How much has Copperfield and Company contributed to employee 401k plans in this payroll? Copperfield and Company issued a 90-day, 5.00% note for $190,000 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 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY Jul. 10 Accounts Payable 190,000.00 2 Notes Payable 190,000.00 1 3 Notes Payable 199,500.00 Accounts Payable 190,000.00 1 5 Interest Expense 9,500.00 1 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 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 The following journal entry was made by your predecessor to record the annual payment on a 5%, 10-year installment note. PAGE 22 JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 Oct. 1 Interest Expense 710 203,264.00 2 Notes Payable 215 499,298.00 3 Cash 110 702,562.00 Using the information provided, compute the following amounts. 1. What was the carrying amount (book value) of the installment note before the payment on October 1? 2. What portion of next year's payment will be interest? (Round the amount to the nearest dollar.) 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? Since there's no way to accurately determine the amount of breakage that might occur, no entry or disclosure is required. Journalize an adjusting entry debiting Product Warranty Expense and crediting Product Warranty Payable. Assume that a reasonable estimate of the warranty cost can be determined by an examination of prior breakage and replacement data