Week Four Exercise Assignment

16) Week Four Exercise Assignment

Liability

1.Partner investments; journal entries. The LP partnership was formed on January 1, 19X7, by investments from Bill Levy and Marv Parcells. Levy contributed $30,000 cash and $80,000 of land. Parcells contributed cash of $50,000 and equipment with a value of $20,000.

 

1. Prepare the journal entries needed to record the investments of Levy and Parcells.

 

2. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing:

 

Social Security taxes: 6% on the first $55,000 earned

Medicare taxes: 1.5% on the first $130,000 earned

Federal income taxes withheld from wages: $7,500

State income taxes: 5% of gross earnings

Insurance withholdings: 1% of gross earnings

State unemployment taxes: 5.4% on the first $7,000 earned

Federal unemployment taxes: 0.8% on the first $7,000 earned

 

The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end.

 

1. Prepare the necessary entry to record Brookhaven’s February payroll. The entry will include deductions for the following:

 

Social Security taxes

Medicare taxes

Federal income taxes withheld

State income taxes

Insurance withholdings

 

1. Prepare the journal entry to record Brookhaven’s payroll tax expense. The entry will include the following:

 

Matching Social Security taxes

Matching Medicare taxes

State unemployment taxes

Federal unemployment taxes

 

3. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following:

12/1      Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity.

2/10      Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit.

12/22    Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.

12/26    Borrowed $5,000 from First City Bank; signed a note payable due in 60 days.

12/31    Repaired six XY-80s during the month at a total cost of $162.

12/31    Accrued 3 days of salaries at a total cost of $1,400.

 

Instructions

 

1. Prepare journal entries to record the transactions.

 

1. Prepare adjusting entries on October 31 to record accrued interest.

 

31. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date.

 

4. Issuance of stock: organization costs. Snowbound Corporation was incorporated in July. The firm’s charter authorized the sale of 200,000 shares of $10 par-value common stock. The following transactions occurred during the year:

7/1:       Sold 45,000 shares of common stock to investors for $18 per share. Cash was collected and the shares were issued.

8/11      Sold 20,000 shares to investors for $22 per share. Cash was collected and the shares were issued.

 

9/1 Declared a cash dividend on 9/1 for $1.00 a share for shareholders on record 10/1 with payment being made on 11/1.

 

Instructions

 

a.Prepare journal entries for the two stock issues.

b.Prepare journal entries for the cash dividend declaration and payment.

 

5. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:

8/2:       Borrowed $75,000 from the Bank of Kingsville by signing a 120-day note.

8/20:     Issued a $40,000 note to Harris Motors for the purchase of a $40,000 de­livery truck. The note is due in 180 days and carries a 12% interest rate.

9/10:     Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed.

9/11:     Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and car­ries a 14% interest rate.

10/10:   The note to Pans Enterprises was paid in full.

 

(Week 5 DQs and Joural)

 

17) Ratios provide the users of financial statements with a great deal of information about the entity. Do ratios tell the whole story? How could liquidity ratios be used by investors to determine whether or not to invest in a company?

 

18)

Profit Margin

Year Ending December 2012      Year Ending December 2011      Year Ending December 2010

Revenues          40,000 35,000 33,000

Operating Expenses

Salaries            15,000 10,000 9,000

Maintenance and Repairs           6,000    9,000    10,000

Rental Expense             2,500    2,500    2,500

Depreciation     2,000    2,000    2,000

Fuel      4,000    3,500    2,500

Total Operating Expenses          29,500 27,000 26,000

Operating Income          10,500 8,000    7,000

Sales and Administrative Expenses        6,000    4,000    3,000

Interest Expense           2,500    2,000    1,000

Net Income       2,000    2,000    3,000

 

Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012. Calculate the profit margin for each of these years. Comment on the profit margin trend.

 

10/31: The note to Datatex Equipment was paid in full.

 

11/30: Paid note to Bank of Kingville

 

Instructions

 

1. Prepare journal entries to record the transactions.

1. Prepare adjusting entries on October 31 to record accrued interest.

31. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date.

19) Reflect for a moment on the ratios (working capital, current ratio, quick ratio, debt to asset, debt to equity, times interest earned, gross margin and net margin) presented this week. If you were considering investing in a company what ratio would be the most important to you? Formulate and argument to defend your position.

 

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