E13-1 (Balance Sheet Classification of Various Liabilities) How would each of the following items be reported on the balance sheet?
(a) Accrued vacation pay. Current liability
(b) Estimated taxes payable. Current liability
(c) Service warranties on appliance sales. Current or long-term liability
(d) Bank overdraft. Current liability
(e) Personal injury claim pending. Disclosed in notes
(f) Unpaid bonus to officers. Current liability
(g) Deposit received from customer to guarantee performance of a contract. Current or noncurrent liability
(h) Sales taxes payable. Current liability
(i) Gift certificates sold to customers but not yet redeemed. Current liability
(j) Premium offers ...view middle of the document...
Notes Payable 50,000
Interest Payable 1000
(2) The zero-interest-bearing note.
Notes Payable 81,000
Less Discount 4500 (6000-1500)
E13-8 (Payroll Tax Entries) The payroll of Delaney Company for September 2012 is as follows.
Total payroll was $480,000, of which $140,000 is exempt from Social Security tax because it represented amounts paid in excess of $106,800 to certain employees. The amount paid to employees in excess of $7,000 was $410,000. Income taxes in the amount of $80,000 were withheld, as was $9,000 in union dues. The state unemployment tax is 3.5%, but Delaney Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current FICA tax is 7.65% on an employee’s wages to $106,800 and 1.45% in excess of $106,800. No employee for Delaney makes more than $125,000. The federal unemployment tax rate is 0.8% after state credit.
Instructions Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately.
Wages & Salaries Expense 480,000
Withholding Taxes Payable 80,000
FICA Taxes Payable* 28,040
Union Dues Payable 9000
Payroll Tax Expense 29,560
FICA Taxes Payable 28,040
Federal Unemployment Tax Payable 560 (480,000-410,000x0.8%)
State Unemployment Tax Payable 960 (80,000x3.5%-2.3%)
E13-13 (Contingencies) Presented below are three independent situations. Answer the question at the end of each situation.
1. During 2012, Maverick Inc. became involved in a tax dispute with the IRS. Maverick’s attorneys have indicated that they believe it is probable that Maverick will lose this dispute. They also believe that Maverick will have to pay the IRS between $800,000 and $1,400,000. After the 2012 financial statements were issued, the case was settled with the IRS for $1,200,000. What amount, if any, should be reported as a liability for this contingency as of December 31, 2012?
They should report the $800,000 as a liability and the range should be noted. According to FASB pronouncements, if an estimate can be made, the low range of the estimate is accrued and the high end of the range is disclosed.
2. On October 1, 2012, Holmgren Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Holmgren’s management along with its counsel have concluded that it is probable that Holmgren will be responsible for damages, and a reasonable estimate of these damages is $6,000,000. Holmgren’s insurance policy of $9,000,000 has a deductible clause of $500,000. How should Holmgren Chemical report this information in its financial statements at December 31, 2012?
The loss should be accrued. Only the $500,000 since the insurance covers all but the deductible.
3. Shinobi Inc. had a manufacturing plant in Darfur, which was destroyed in the civil...