Youve 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 his job suddenly, and was not able to complete all his 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 register to determine if there are any errors or omissions.

2. Calculate the relevant amounts for the companys note payable and determine whether your predecessors journal entries are correct.

3. 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

Copperfield and Company

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	Wages Payable
216	Social Security Tax Payable
217	Medicare Tax Payable
218	Employees Federal Income Tax Payable
224	Federal Unemployment Tax Payable
225	State Unemployment Tax Payable
228	Product Warranty Payable

	EQUITY
310	D. Copperfield, Capital
311	D. Copperfield, Drawing
312	Income Summary

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Wages 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
538	Cash Short and Over
539	Product Warranty Expense
540	Miscellaneous Expense
710	Interest Expense

Since this is your first day, youre relieved to find that the company has only three employees in the main office that have not yet been reviewed. The partial payroll register for these employees is below. Some data is missing, and other data may be in error. Each of these employees earns $18.00 per hour, and the company follows the Fair Labor Standards Act in paying overtime to its employees. You have been assured that the Federal Income Tax withholding and check numbers are correct, so you do not need to check those figures.

Note 1: For 2015, the social security tax rate was 6.2% and the medicare tax rate was 1.45%. However, for text examples and problems, including this one, use rates of 6% for social security tax and 1.5% for medicare tax.

Note 2: Earnings subject to the social security tax are limited to an annual threshold amount, but for text examples and problems, including this one, assume all accumulated annual earnings are below this threshold and subject to the tax.

Review the payroll register below, which was prepared by your predecessor, and then scroll down to complete a corrected payroll register. If there is no amount or an amount is zero, enter 0. Round your interim computations to the nearest cent, if required.

		Earnings			Deductions Withheld				Paid		Account Debited
	Total				Social	Medicare	Federal				Wages
Employee Name	Hours	Regular	Overtime	Total	Security Tax	Tax	Income Tax	Total	Net Pay	Check No.	Expense
Dartle, Rosa	40	720.00		720.00	10.80	43.20	52.25	106.25	613.75	2355	613.75
Traddles, Thomas	47	846.00		846.00	12.69	50.76	63.75	127.20	718.80	2557	718.80
Wickfield, Agnes	40	720.00		720.00	10.80	43.20	32.55	86.55	633.45	2892	633.45
Total		2,286.00	$0.00	2,286.00	34.29	137.16	148.55	320.00	1,966.00		1,966.00

		Earnings			Deductions Withheld				Paid		Account Debited
	Total				Social	Medicare	Federal				Wages
Employee Name	Hours	Regular	Overtime	Total	Security Tax	Tax	Income Tax	Total	Net Pay	Check No.	Expense
Dartle, Rosa	40						52.25			2355
Traddles, Thomas	47						63.75			2557
Wickfield, Agnes	40						32.55			2892
Total							148.55

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

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1	Jul. 10	Accounts Payable		190,000.00
2		Notes Payable			190,000.00
3		Notes Payable		199,500.00
4		Accounts Payable			190,000.00
5		Interest Expense			9,500.00

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.

Show the journal entry for payment of the note at maturity as it should have been entered. Dont forget to include the date. Assume a 360-day year.

PAGE 25

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3

Copperfield and Company has decided to provide a warranty on its products. The previous clerk left a note with his files on this new warranty on glass breakage. He decided 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 clerks notes and evaluate his decision. After refreshing your memory on the treatment of contingent liabilities, what action will you take?

a. 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.

b. Make no entry, but disclose the possible warranty liability amount in the notes to the company financial statements.

c. Make no entry; the previous clerk is correct that there is a remote chance of any breakage.

d. Since theres no way to accurately determine the amount of breakage that might occur, no entry or disclosure is required.