Chapter 11

Exercise 11-3

Sylvestor Systems borrows $110,000 cash on May 15, 2015, by signing a 60-day, 12% note.

  1. On what date does this note mature?
  2. Suppose the face value of the note equals $110,000, the principal of the loan. Prepare the journal entries to record (a) issuance of the note and (b) payment of the note at maturity.

Check  (2b) Interest expense, $2,200

Exercise 11-5

BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $117,000 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 2.9% of the first $7,000 paid to its employee. Compute BMX's amounts for each of these four taxes as applied to the employee's gross earnings for September under each of three separate situations (a), (b), and (c). (Round amounts to cents.)

 table shows the average income tax rate for different categories

Check  (a) FUTA, $3.60; SUTA, $17.40

Exercise 11-6

Using the data in situation a of Exercise 11-5, prepare the employer's September 30 journal entries to record salary expense and its related payroll liabilities for this employee. The employee's federal income taxes withheld by the employer are $80 for this pay period. (Round amounts to cents.)

Exercise 11-11

For the year ended December 31, 2015, Lopez Company has implemented an employee bonus program equal to 3% of Lopez's net income, which employees will share equally. Lopez's net income (pre-bonus) is expected to be $500,000, and bonus expense is deducted in computing net income.

  1. Compute the amount of the bonus payable to the employees at year-end (use the method described in the chapter and round to the nearest dollar).
  2. Prepare the journal entry at December 31, 2015, to record the bonus due the employees.
  3. Prepare the journal entry at January 19, 2016, to record payment of the bonus to employees.

Check  (1) $14,563

Exercise 11-12

Prepare any necessary adjusting entries at December 31, 2015, for Maxum Company's year-end financial statements for each of the following separate transactions and events.

  1. Employees earn vacation pay at a rate of one day per month. During December, 20 employees qualify for one vacation day each. Their average daily wage is $160 per employee.
  2. During December, Maxum Company sold 12,000 units of a product that carries a 60-day warranty. December sales for this product total $460,000. The company expects 10% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $15.

Exercise 11-13

Prepare any necessary adjusting entries at December 31, 2015, for Melbourn Company's year-end financial statements for each of the following separate transactions and events.

  1. Melbourn Company guarantees the $100,000 debt of a supplier. The supplier will probably not default on the debt.
  2. A disgruntled employee is suing Melbourn Company. Legal advisers believe that the company will probably need to pay damages, but the amount cannot be reasonably estimated.