corporate financial accounting f10

C10 - 12
Payroll Register Summary
Earnings: Regular Overtime Total Deductions: Social security tax Medicare tax Federal income tax Retirement savings United Way Accounts receivable Total Net amount paid
July 30. Bowden Co. paid the amount due. Interest: $10,000 x 12% x 60 / 360 = $200
C10 - 5
Product Warranty Liability
To match revenues and expenses properly, warranty costs should be recognized as expense in the same period in which related revenues are recorded.
C10 - 7
Gross Pay Calculation
John T. McGrath is employed by McDermott Supply Co. at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended December 27, McGrath worked 44 hours.
Description Debit Credit
Mdse. Inventory Accts. Payable
10,000
10,000
Accts. Receivable Sales Cost of Mdse. Sold Mdse. Inventory
10,000
10,000
7,500 7,500
May 1. Bowden Co. purchased merchandise on account from Coker Co., $10,000, terms 2/10, n/30
Coker Co. (Seller/Creditor)
Description Debit Credit
Mdse. Inventory Accts. Payable
10,000
10,000
Accts. Receivable Sales Cost of Mdse. Sold Mdse. Inventory
Estimated warranty: $60,000 x 5% = $3,000
C10 - 6
Payroll and Payroll Taxes
Payroll is the amount paid to employees for services provided. Payrolls are important because: 1. Good employee relations demand that payrolls be calculated accurately and paid as scheduled.
Chaplities
Learning Objectives 1. The Nature of Current Liabilities 2. Short-Term Notes Payable C10 3. Contingent Liabilities 4. Payroll and Payroll Taxes 5. Accounting Systems for Payroll 6. Employees’ Fringe Benefits 7. Financial Analysis and Interpretation
Date Description Debit Credit
Dec. 31 Product Warranty Expense
3,000 3,000
Product Warranty Payable
Sales of $60,000 with a 36-month warranty. Estimated average cost to repair defects is 5%.
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C10 - 2
Short-Term Notes Payable
Bowden Co. (Buyer/Borrower)
Description Debit Credit
Coker Co. (Seller/Creditor)
$1,000 150 $1,150
$1,100 50 $1,150
C10 - 8
Gross Pay Calculation
John T. McGrath is employed by McDermott Supply Co. at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended December 27, McGrath worked 44 hours.
Earnings subject to 1.5% Medicare tax Current earnings Medicare tax rate Medicare tax Total FICA tax $1,150 x 1.5%
17.25 $68.25
C10 - 10
Withholding Taxes, Other Deductions
C10 - 3
Short-Term Notes Payable
Bowden Co. (Buyer/Borrower)
Description Debit Credit
Coker Co. (Seller/Creditor)
Description Debit Credit
Mdse. Inventory Accts. Payable
Employers are required to withhold federal income tax from each employee based on the withholding table and information provided by the employee’s W-4 form. Federal income tax and FICA tax must be withheld from the pay of each employee. Deductions for other purposes may be withheld by mutual agreement.
May 31. Bowden Co. issued a 60-day, 12% note for $10,000 to Coker Co. on account.
C10 - 4
Short-Term Notes Payable
Bowden Co. (Buyer/Borrower)
Description Debit Credit
Employee viewpoint: Base earnings (40 x$25) Overtime earnings (4 x $37.50) Total earnings Employer viewpoint: Base earnings (44 x$25) Overtime premium (4 x $12.50) Total earnings
2. Payroll expenditures are subject to a variety of federal, state, and local taxes.
3. Total payroll expense (gross payroll plus payroll taxes) has a major impact on net income.
10,000
10,000
Accts. Receivable Sales Cost of Mdse. Sold Mdse. Inventory
10,000
10,000
7,500 7,500
Accts. Payable Notes Payable
10,000 10,000
Notes Receivable 10,000 Accts. Receivable 10,000
C10 - 11
Employee Net Pay Calculation
Earnings: Regular earnings $1,000.00 Overtime earnings 150.00 Total Deductions: Social security tax tax $ 51.00 Medicare tax 17.25 Federal income tax 237.00 Retirement savings 20.00 United Way 5.00 Total deductions Net pay
Employee viewpoint: Base earnings (40 x $25) Overtime earnings (4 x $37.50) Total earnings Employer viewpoint: Base earnings (44 x$25) Overtime premium (4 x $12.50) Total earnings
10,000
10,000
7,500 7,500
Accts. Payable Notes Payable