Attracting and retaining the best employees is crucial to operating a business. Employees will join a company based on opportunities for advancement, training, company culture, and salary and benefits provided. One business that is often listed in Fortune magazine’s “100 Best Companies to Work For” is Recreational Equipment Inc. (REI). REI is committed to inspiring, educating, and outfitting its customers for a lifetime of outdoor adventure. REI offers competitive salaries as well as benefits, including paid sabbaticals, an onsite fitness center, healthcare coverage, telecommuting, and a compressed workweek. The accounting department at REI is responsible for determining salaries/wages and benefits for employees, calculating payroll deductions for taxes and other expenses, and ensuring that company payrolls are processed in a timely and accurate manner. In this chapter, you learned how companies such as REI complete the payroll records for their employees. Why do you think timely and accurate payroll information is so important to a company such as REI?
> For the third quarter of the year, Johnson Company, 415 Circle Avenue, Chicago, Illinois 60652, received Form 941 from the Internal Revenue Service. The identification number of Johnson Company is 91-4213171. Its payroll for the quarter ended September 3
> Jennifer Ross, an employee of Hampton Company, worked 44 hours during the week of February 9 through 15. Her rate of pay is $30 per hour, and she receives time-and-a-half for work in excess of 40 hours per week. She is married and claims two allowances o
> Using the following information, prepare the Cost of Goods Sold section of an income statement. Purchases Discounts …………………………………………….. $ 8,500 Merchandise Inventory, December 31 ……………………. 189,000 Purchases ……………………………………………………………. 476,000 Merchandise I
> Calculate the missing items in the following:
> In the closing procedure, what happens to (a) Purchases Discounts, (b) Sales Returns and Allowances, (c) Freight In, and (d) Gain on Disposal of Property and Equipment?
> On an income statement, what is the difference between income from operations and net income? Which is more useful in comparing the results of operations over a number of years?
> On a balance sheet, what is the difference between Current Liabilities and Long-Term Liabilities? Give an example of an account in each classification.
> What is the difference between the cost of goods available for sale and the cost of goods sold?
> What could happen if a business spent the cash it received in advance for services it promised to perform at a later date?
> The owner of a motorcycle shop allows his two sons to take motorcycles home to try them out on different types of surfaces because he believes that his sons need to be familiar with the products they sell. Sometimes the motorcycles are not returned to th
> On November 1, an exterior painting company received $5,310 for a paint job that will not be finished for a few months. As of December 31, which is the end of the fiscal period, $2,400 worth of painting will not have been completed. The bookkeeper comple
> You have a friend who is a seamstress specializing in Renaissance costumes. She receives cash well in advance of the required date, often in the fiscal period prior to the date of delivery of the costume, not only to enable her to purchase material but a
> Hosung Company’s Cash account shows a balance of $801.65 as of August 31 of this year. The balance on the bank statement on that date is $1,383. Checks for $260.50, $425.10, and $331.00 are outstanding. The bank statement shows a check issued by another
> Burt’s Bees describes itself as an “Earth-Friendly, Natural Personal Care Company” that produces products for health, beauty, and personal hygiene. The company manufactures over 197 products distributed in nearly 30,000 retail outlets worldwide. As a mer
> A portion of Johnson’s Farm Supply work sheet for the year ended December 31 follows: Required 1. Determine the entries that appeared in the Adjustments columns and prepare the general journal entries for the adjustments in the genera
> A portion of the work sheet of Habib Company for the year ended December 31 follows. Required 1. Determine the entries that appeared in the Adjustments columns and present them in general journal form on page 41. 2. Determine the net income for the yea
> A portion of Anderson Publishing’s work sheet for the year ended December 31 follows: Required 1. Determine the entries that appeared in the Adjustments columns and prepare the general journal entries for the adjustments. If using Wor
> A portion of the work sheet of Sadie’s Flowers for the year ended December 31 is as follows: Required 1. Determine the entries that appeared in the Adjustments columns and present them in general journal form on page 41. 2. Determine
> On December 31, the end of the year, the accountant for Fireside Magazine was called away suddenly because of an emergency. However, before leaving, the accountant jotted down a few notes pertaining to the adjustments. Journalize the necessary adjusting
> Journalize the required adjusting entries for the year ended December 31 for Butler Spa and Pool Accessories. Butler Spa and Pool Accessories uses the periodic inventory system. a–b. On December 31, a physical count of inventory was taken. The physical c
> Indicate the work sheet columns (Income Statement Debit, Income Statement Credit, Balance Sheet Debit, Balance Sheet Credit) in which the balances of the following accounts should appear: a. S. Moon, Drawing b. Utilities Expense c. Merchandise Inventory
> Explain what is meant by unearned revenue. Why it is treated as a liability?
> Between the end of one month and the 15th day of the next month, the balance in the employer’s business bank account has been getting smaller and smaller. An employee prepares the next payroll and correctly computes the necessary withholding taxes. The e
> What are real accounts? What are nominal accounts? Give examples of each.
> TruGreen is the world’s largest lawn and landscape company, employing over 10,000 employees and serving more than 1.7 million customers. The Pawtucket Red Sox is a minor league baseball affiliate of the Boston Red Sox. The team’s current roster consists
> Sharon’s Dance Studio has the following information related to its current year payroll as of December 31: a. Federal Unemployment Tax Payable as of December 31, $110.00 b. FUTA taxable earnings limit of $7,000, rate 0.6 percent (0.006) c. First-quarter
> Grande Company has the following balances in its general ledger as of March 1 of this year: a. FICA Taxes Payable (liability for February), $9,180.00 (total for employee and employer). The FICA Social Security Tax Payable is $7,440.00, and the FICA Medic
> Kovarik Company had the following payroll for the week ended March 21: Assumed tax rates are as follows: a. FICA: Social Security, (employer) 6.2 percent (0.062) and (employee) 6.2 percent (0.062) on the first $118,500 for each employee, and Medicare,
> Jack’s Lawn Service Company has the following information related to its current year payroll as of December 31: a. Federal Unemployment Tax Payable as of December 31, $336.00 b. FUTA taxable earnings limit of $7,000, rate 0.6 percent (0.006) c. First-qu
> Lynden Company has the following balances in its general ledger as of June 1 of this year: a. FICA Social Security Tax Payable (employee and employer) is $1,393.50. FICA Medicare Tax Payable (employee and employer) is $325.90. b. Employeesâ€&#
> Mooney Labs had the following payroll for the week ended February 28: a. FICA: Social Security, (employer) 6.2 percent (0.062) and (employee) 6.2 percent (0.062) on the first $118,500 for each employee, and Medicare, 1.45 percent (0.0145) on all earnin
> Great Manufacturing Company received and paid a premium notice on January 2 for workers’ compensation insurance stating the rates for the new year. Estimated employees’ earnings for the year are as follows: At the en
> On September 30, Hilltop Company’s selected payroll accounts are as follows: Prepare general journal entries to record the following: Oct. 15 Payment of federal tax deposit of FICA taxes and the federal income tax. 31 Payment of state
> On September 30, Cody Company’s selected account balances are as follows: In general journal form, prepare the entries to record the following: Oct. 15 Payment of liabilities for FICA taxes and the federal income tax. 31 Payment of li
> Why is there generally a difference between the balance in the Cash account on the company’s books and the balance on the bank statement?
> Selected columns of Envirocon Company’s payroll register for March are as follows. The employer’s Social Security tax amount has already been calculated as $3,124.34. The employees’ FICA Medicare tax
> The information on earnings and deductions for the pay period ended December 14 from King Company’s payroll records is as follows: For each employee, the Social Security tax is 6.2 percent of the first $118,500, and the employerâ
> Go Systems had the following payroll data for wages for the week ended February 5. The state income tax is assumed to be 20% of the federal income tax. a. Prepare the general journal entry to record the payroll. b. Prepare the general journal entry to
> On January 14, at the end of the second week of the year, the totals of Castle Company’s payroll register showed that its store employees’ wages amounted to $33,482 and that its warehouse wages amounted to $13,560. Withholdings consisted of federal incom
> Signature Company’s partial payroll register for the week ended Practice Exercise 1 January 7 is as follows: Assume that the payroll is subject to an employer’s Social Security tax of 6.2 percent on the first $118,50
> Explain how payroll fraud can be prevented.
> Explain the advantage of establishing a tax calendar.
> Generally, what is the time schedule for payment of workers’ compensation insurance premiums?
> How many copies are made of a Form W-2? Who uses the copies of the W-2 form?
> Explain the deposit requirement for federal unemployment tax.
> What is the purpose of closing entries? What is a consequence of forgetting to make closing entries?
> Describe the journal entry to: a. Record the payroll. b. Record the employer’s payroll tax contributions. c. Pay the payroll. d. Pay the state and federal unemployment taxes. e. Pay the FICA (Social Security and Medicare) and Federal Income Tax withholdi
> An employee who is married and has three children submits a W-4 form to his employer. He checks the box that says “Single” and writes zero in the “Deductions Claimed” box. Is this action ethical, unethical, or illegal? Explain your reasoning.
> Southern Company pays its employees weekly by issuing checks on its regular bank account. The owner thinks it would be too much trouble to have a second checking account. Explain to the owner why having this account might be worth the additional effort.
> For the week ended September 7, the totals of the payroll register for Benton, Inc., are presented below. The regular and overtime earnings are correct. List six errors that exist. None of the employees have earned more than $118,500, so all earnings are
> Using the income tax withholding table in Figure 3, for each employee of Miller Company, determine the net pay for the week ended January 21. Assume a Social Security tax of 6.2 percent and a Medicare tax of 1.45 percent. All employees have cumulative ea
> Lisa Meilo works for Pacific Company, which pays its employees time-and-a-half for all hours worked in excess of 40 per week. Meilo’s pay rate is $37 per hour. Her wages are subject to federal income tax, a Social Security tax deduction
> Determine the gross pay for each employee listed below. a. Clay Jones is paid time-and-a-half for all hours over 40. He worked 45 hours during the week. His regular pay rate is $25 per hour. b. Mary James worked 48 hours during the week. She is entitled
> Why is it necessary to make general journal entries for the ledger balance side of the bank reconciliation?
> Assume that the employees in Exercise 7–7 are paid from the company’s regular bank account (check numbers 981 and 982). Prepare the entry to record and pay the payroll in general journal form, dated September 30. In E
> Ellie Harrod, owner of Harrod’s Dry Cleaners, makes bank deposits in the night depository at the close of each business day. The following information for the last four days of July is available. Required In general journal form, reco
> Indicate whether the following items in a bank reconciliation should be (1) Added to the Cash account balance, (2) Deducted from the Cash account balance, (3) Added to the bank statement balance, or (4) Deducted from the bank statement balance. a. NSF ch
> Precision Labs has two employees. The following information was taken from its individual earnings records for the month of September. Determine the missing amounts assuming that the Social Security tax is 6.2 percent, the Medicare tax is 1.45 percent, a
> What is the purpose of endorsing a check?
> On January 21, the column totals of the payroll register for Great Products Company showed that its sales employees had earned $14,960, its truck driver employees had earned $10,692, and its office employees had earned $8,670. Social Security taxes were
> Why does a bank keep a signature card on file for customers’ accounts?
> For tax purposes, assume that the maximum taxable earnings are $118,500 for Social Security and $7,000 for the unemployment tax and that all earnings are taxable for Medicare. For the payroll register for the month of November for Shelby, Inc., determine
> What are internal controls designed to do?
> What is the difference between an employee and an independent contractor? List two examples of an independent contractor.
> You work as a cashier for a service business. Some days you are short of cash at the end of the day, and some days you have more cash than the cash register tape says was earned. You are embarrassed when your cash is short and don’t want the owner to kno
> The bookkeeper has completed a work sheet and has journalized and posted the closing entries, but he forgot to journalize and post the adjusting entries from the work sheet. What are the effects of these actions and omissions? How would these actions and
> List the steps in the closing procedure in the correct order.
> As the new bookkeeper for a small business, you find that several people access the Petty Cash Fund, usually without anyone leaving a written explanation of what the money was used for. The amount of cash does not match the recorded amount of the fund. E
> The post-closing trial balance submitted to you by the bookkeeper of Tafoya Consulting Company is shown below. Assume that the debit total ($41,048) is correct. a. Analyze the work and prepare a response to what you have reviewed. b. Journalize the closi
> BDO USA, LLP and Grant Thornton, LLP are full-service consulting and forensic accounting firms. These firms offer services ranging from determining contract damages to overseeing fraud examination. Their forensic accountants are experts at finding even t
> Your uncle owns a small sole proprietorship. He does his own bookkeeping, although he didn’t finish the chapter on closing entries before he opened his business. He mentions to you that closing entries look like they take a long time. He wonders why he s
> Jim’s Fitness Center deposits all receipts in the bank each evening and makes all payments by check. On April 30, its ledger balance of cash is $1,515.10. The bank statement balance of cash as of April 30 is $1,920.42. Use the following information to re
> Rather than going directly to college, some students take time off to travel abroad, learn new skills, or volunteer. This period is known as a “gap year.” Real Gap Experience provides hundreds of gap year traveling opportunities in over 45 countries arou
> Roberta Felino, owner of Roberta’s Beauty Salon, makes bank deposits in the night depository at the close of each business day. The following information for the first four days of April is available. Required In general journal form,
> Identify whether the following accounts would be included on a post-closing trial balance. Post-Closing Trial Balance Account Title Yes No 0. Example: Cash X a. Service Revenue b. Prepaid Insurance c. Supplies d. Accounts Payable e. D. Hughes, Drawi
> On March 1 of this year, Stowe Company established a Petty Cash Fund, and the following petty cash transactions took place during the month: Mar. 1 Cashed check no. 314 for $100 to establish a Petty Cash Fund, and put the $100 in a locked drawer in the o
> After all revenue and expenses have been closed at the end of the fiscal period ended December 31, Income Summary has a debit of $45,550 and a credit of $36,520. On the same date, D. Mau, Drawing has a debit balance of $12,000 and D. Mau, Capital had a b
> The Ledger Balance of Cash section of the bank reconciliation for Virtual Net Company for August 31 follows. Journalize the entries required to bring the general ledger up to date as of August of this year.
> Merkle Company deposits all receipts in the bank each evening and makes all payments by check. On November 30, its ledger balance of cash is $3,219.72. The bank statement balance of cash as of November 30, is $3,490.72. You are given the following inform
> The Income Statement columns of the work sheet of Dunn Company for the fiscal year ended June 30 follow. During the year, K. Dunn withdrew $4,000. Journalize the closing entries.
> The Quilt Shop deposits all receipts in the bank each evening and makes all payments by check. On July 31, its ledger balance of cash is $2,830.15. The bank statement balance of cash as of July 31 is $3,215.20. Use the following information to reconcile
> As of December 31, the end of the current year, the ledger of Harris Company contained the following account balances after adjustment. All accounts have normal balances. Journalize the closing entries. Cash $ 8,440 C. Harris, Drawing $1,498 Equipme
> On May 1 of this year, Ellsworth and Company established a Petty Cash Fund. The following petty cash transactions took place during the month: May 1 Cashed check no. 956 for $150 to establish a Petty Cash Fund, and put the $150 in a locked drawer in the
> The ledger accounts after adjusting entries for Cruz Services are presented below. a. Journalize the following closing entries and number as steps 1 through 4. b. What is the new balance of A. Cruz, Capital after closing? Show your calculations. Own
> Arthur’s Men’s Shop deposits all receipts in the bank each evening and makes all payments by check. On November 30, its ledger balance of cash is $2,375.05. The bank statement balance of cash as of November 30 is $2,784.77. Use the following information
> Classify the following accounts as real (permanent) or nominal (temporary) and indicate with an X whether the account is closed. Also indicate the financial statement in which each account will appear. The Building account is given as an example. Cl
> a. Describe the entries that have been posted to the following accounts after the Change Fund was established. b. How will the balance of Cash Short and Over be reported on the income statement? Change Fund Sales Cash 150 Mar. 4 1,472 Mar. 4 1,475
> Prepare a statement of owner’s equity for The Lindal Clinic for the year ended December 31. P. Lindal’s capital amount on January 1 was $124,000, and there was an additional investment of $7,000 on May 12 and withdrawals of $31,500 for the year. Net inco
> Number in order the following steps in the accounting cycle: a. Prepare a trial balance. b. Post journal entries to the accounts in the ledger. c. Journalize and post the adjusting entries from the data on the work sheet. d. Analyze source documents and
> At the end of the day, the cash register tape lists $881.40 as total income from services. Cash on hand consists of $18.25 in coins, $433.60 in currency, $100.00 in traveler’s checks, and $427.00 in customers’ checks. The amount of the Change Fund is $10
> Indicate with an X whether each of the following would appear on the income statement, statement of owner’s equity, or balance sheet. An item may appear on more than one statement. The first item is provided as an example. Balance
> Place a check mark in the column that indicates the location of each item that would be found on a bank reconciliation. Assume that the checks written by the company are written correctly. Subtract Subtract Add to Ledger from Ledger Balance of Add t
> When would revenue and expenses be recorded if a business used the cash basis of accounting? If a business used the accrual basis of accounting?
> a. What does a debit balance in Cash Short and Over mean? b. Where does a debit balance in Cash Short and Over appear in the financial statements? c. What does a credit balance in Cash Short and Over mean? d. Where does a credit balance in Cash Short and
> Marty is an accountant. Sometimes printouts of financial statements contain errors, making the financial statements unusable. Marty doesn’t like to waste anything, so he takes the unusable financial statements to his son’s day care center to use for draw
> You are an owner/bookkeeper in a country whose economy has been nearly destroyed. Goods are scarce. In fact, you have no goods to sell at the start of each day. You go out early each morning to purchase goods and haul them back to sell. At the end of the
> What two measures are used to determine whether a firm has sufficient capital to operate and whether the firm has the ability to pay its debts?
> What are the rules for recognizing whether an adjusting entry should be reversed?
> What are the basic classifications found on an income statement for a merchandising business as compared to a service business?
> What is the order for listing accounts in the Current Assets section of the balance sheet?
