PREMIUM AND WARRANTY ARRANTY LIABILITY
Problem 1-1 In an effort to increase sales, Mills Company inaugurated a sales promotional campaign on June June 30, 30, 2013 2013.. The The entity entity place placed d a coupo coupon n rede redeema emable ble for for premiu premium m in each each pacage of cereal sold. !ach premium cost "20 and fi#e coupons must be presented by a customers to recei#e a premium. The entity estimated that only $0% of the coupons issued &ould be redeemed. 'or the si( months ended )ecember 31,2013, the follo&ing information is a#ailable.
Package of cereal sold 1$0,000
Premiums purchased 12,000
oupo!s redeemed *0,000
+hat is the estimated liability for premiums on )ecember 31,2013 a. b. c. d.
1$0,000 22*,000 2--,000 3-*,00
Problem 1-2 )urin )uring g 2013 2013,, )ay )ay Comp Company any sold sold 00, 00,00 000 0 bo(es bo(es of cae cae mi( under under a ne& ne& sales sales promotional program. !ach bo( contained one coupon, to &hich entitled the customer to a baning pan upon remittance of "*0. The entity paid "0 per pan and " for handling and shipping and estimated that -0% of coupons &ould redeemed, e#en though only 300,000 coupons had been processed during 2013. +hat amount should be reported as a liability for unredeemed coupons on )ecember 31, 2013 a. b. c. d.
1,00 ,000,000 ,000 1,0 ,00,000 ,000 3,000,000 ,00 ,000,000 ,000
Problem1-3 In pacages of the products, Curran Company included coupons that may presented at a retail stores to obtain discounts on other Curran products. /etailers &ere reimbursed for the face amounts of coupons redeemed plus 10% of that amount for handling costs. The entity honored reuests for coupon redemption by retailers up to three months after the consumer e(piration date. The entity estimated that 0% of all coupons issued &ould ultimately be redeemed. The customer e(piration date is )ecember 31,2013. The
total face amount of coupons issued &as "$00,000 and the total payments to retailers during 2013 amounted to "220,000. +hat amount should be reported as liability for unredeemed coupons on )ecember 31,2013. a. b. c. d.
0 200,000 2*2,000 30-,000
Problem 1-4 Case Case Cereal Cereal Company Company distrib distribute uted d coupons coupons to promote promote ne& products products.. n ctober ctober 1,2013, the entity mailed 100,000 coupons for "* of each bo( of cereal purchased. The The entit entity y e(pec e(pecte ted d 12,00 12,000 0 of these these coupo coupons ns to be redee redeeme med d befor before e )ece )ecembe mber r 31,2013 31,2013 e(pirat e(piration ion date. date. It taes taes 30 days days from the redemption redemption date date for the entity entity to recei#e the coupons from the retailers. retailers. The entity reimbursed reimbursed the retailers an additional " for each coupon redeemed. n )ecember 31,2013, the entity had a paid retailers "20,000 related to these coupons and had ,000 coupons on hand hand that had not been processed for payment. +hat amount should be reported as liability for coupons on )ecember 31,2013. a. b. c. d.
30,000 20,000 20,000 22,000
Problem 1-5 Topsy Company started a ne& promotional program. 'or e#ery 10 bo( tops returned, customers recei#e a basetball. The entity estimate that the only $0% of the bo( tops reaching the maret &ould be redeemed. 4dditional information is as follo&5
U!i"s
Amou!"
6ales of "roduct
100,000
30,000,000
7asetballs purchased
,00
*,12,000
7asetball )istributed
*,000
+hat is the amount of the year8end estimated liability associated &ith this promotion a. b. c. d.
*,12 ,12,000 ,000 1,0 ,00,000 ,000 3,000,000 *,0 ,00,000 ,000
Problem 1-6 7eginning 2013, )aisy Company began mareting a ne& beer called 96erbesa:. To help promote the product, The management is offering a special 6erbesa beer mug to each customer for e#ery 20 specially mared bottle caps of 6erbesa, The emtity estimated that out of the 300,000 bottles of 6erbesa sold during 2013, only 0% of the mared bottle caps &ould be redeemed. )uring 2013, the entity purchased -,000beer mugs at a total costs of "3$0,000 or "* each. )uring the year, the entity already distributed *,00 mugs to customers. +hat is the premium liability on )ecember 31,2013 a. b. c. d.
13,000 33,00 202,00 3$0,000
Problem 1-7 7are Company included one coupon in each bo( of laundry soap sold. 4 to&el is offered as a premium to customers &ho send in 10 coupons and a remittance of "20. 2013
201*
Co#es of soap sold
00,000
-00,000
;umber of to&el purchased <"100 per to&el=
20,000
2,000
Coupons redeemed
1*0,000
200,000
The entity estimated that only 30% of the coupons &ould be redeemed. +hat is the premium liability on )ecember 31, 201*. a. b. c. d.
00,000 *00,000 320,000 -0,000
Problem 1-8 >o#e Company included one coupon in each pacage sold. 4 to&el is offered as a premium to customers &ho send in 10 coupons5
#$%&
#$%'
"acage of cereal sold
00,000
-00,000
;umber of to&els purchased at *0 per to&el
30,000
$0,000
;umber of to&el distributed as premium
20,000
0,000
,000
3,000
;umber of to&els to be distributed as premium !e(" period
+hat amount should be reported as premium e(pense in 201* a. b. c. d. e.
2,*00,000 2,000,000 2,120,000 1,20,000
Problem 1-9 Claim Company offers the customers a pottery cereal bo&l if they send in three bo(tops &ould be redeemed . In 2013, the entity sold $,000 bo(es and customers redeemed 330,000 bo(tops recei#ing 110,000 bo&ls. The cost of each bo&l is "2. +hat is the liability for outstanding premium on )ecember 31,2013. a. b. c. d. e.
20,000 3,000 $2,000 -,000
Problem 1-10 !nergy Company offered a cash rebate of "10 on each "*0 pacage of batteries sold during 2013. ?istorically, 10% of customers mail in the rebate form. )uring 2013, $,000,000 pacages of batteries are sold, and 210,000 "10 rebates are mailed to customers. +hat amount of rebate e(pense and liability for rebates should be reported respecti#ely, on )ecember 1,201*. a. b. c. d.
$,000,000 and $,000,000 $,000,000 and 3,00,000 3,00,000 and 3,00,000 2,100,000 and 3,00,000
Problem1-11 James Company, a grocery retailer, operates a customer loyalty program. The entity grants program members loyalty points &hen they spend a specified amount on groceries. "rogram members can redeem the points for further groceries. The points ha#e on e(piry date. )uring 2013, the entity granted 10,000 points. Management e(pects that -,000 of these point &ill be redeemed. The fair #alue of each loyalty point is estimated at "100. The sales during 2013 amounted to -,000,000 including the loyalty points. n )ecember 31,2013, *,000 points ha#e been redeemed in e(change for groceries. In 201*, the management re#ised its e(pectation and no& e(pects ,000 points to be redeemed altogether. )uring 201*, the entity redeemed *,100 points. +hat is the re#enue earned from loyalty points for the year ended )ecember 31,201* a. b. c. d.
100,000 *00,000 00,000 -0,000
Problem 1-12 Jeane Company, a retailer of electrical goods, participates in a customer loyalty program operated by an airline. The entity grants program members one air tra#el point for e#ery "1,000 spent on electrical goods. "rogram members can redeemed the points for tra#el &ith the airline sub@ect to a#ailability. The entity pays the airline "0 for each point. )uring 2013, the entity sold electrical goods for consideration totaling ",000,000 and granted ,000 points. The fair #alue of a point is "100. If the entity has collected the consideration allocated to the point on its o&n account, +hat is the re#enue to be recogniAed in 2013 in relation to the points a. 00,000 b. *0,000 c. 0,000 d. 0
Program 1-13 !ria Company operates a customer loyalty program. The entity grants loyalty points for goods purchased. The loyalty points can be used by the customers in e(change for goods of the entity. The points ha#e no e(piry date. )uring 2013, the entity issued 0,000 a&ard credits. The fair #alue of the a&ard credit is reliably measured at "2,000,000. In 2013, the entity sold goods to customers for a total consideration of ",000,000 including the fair #alue of the a&ard credit. The total a&ard credit e(pected
to redeem are -0% in 2013 and -% in 201*.The a&ard credit actually redeem are 1,000 in 2013 and ,0 in 201*. +hat is the re#enue earned from points in 201*. a. b. c. d.
$00,000 0,000 330,000 31-,000
Problem 1-14 Mill Company sells &ashing machines that carry a three8year &arranty against manufacturerBs defect. 7ased on the entityBs e(perience, &arranty costs are estimated at "300 per machine. )uring the current year, entuty sold 2,*00 &ashing machines and paid &arranty e(pense for the current year a. b. c. d.
10,000 2*0,000 0,000 20,000
Problem 1-15 n 4pril 1, 2013, 4sh Company began offering a ne& product for sales under a one8 year &arranty. f ,000 units in in#entory on 4pril 1,2013, 30,000 had been sold by June 30,2013. 7ased on its e(perience &ith similar products, the entity estimated that the a#erage &arranty cost per unit sold &ould be "-0. 4ctual &arranty costs incurred from 4pril 1 through June 30,2013 amounted to "00,000. n June 30,2013, +hat is the estimated &arranty liability a. 00,000 b. 1,$00,000 c. 1,00,000 d. 3,300,000
Problem 1-16 )uring 2013, /e( Company introduce a ne& carrying a t&o8year &arranty against defects. The estimated &arranty costs related to peso sales are 2% &ithin 12 months follo&ing sae and *%in the second12 months follo&ing sale. 6ale are "$,000,000 for 2013 and "10,000,000 for 201*. 4ctual &arranty e(penditures are 0,000 for 2013 and "300,000 for 201*. n )ecember 31,201* &hat is the estimated &arranty liability
a. 0,000 b. 100,000 c. *0,000 d. 0
Problem 1-17 7old Company estimated the annual &arranty e(pense at 2% of annual set sales. The net sales for 2013 amounted to *,000,000. n January 1, 2013, the &arranty liability &as "$0,000 and the &arranty payments during 2013 totaled "0,000. +hat is the &arranty liability on )ecember 31,2013 a. b. c. d.
10,000 0,000 -0,000 0,000
Problem 1-18 7ased Company manufactures high8end hone electronics system. The entity pro#ides a one8year &arranty for all products sold. The entity estimated that the &arranty cost is "200 per unit sold and reported a liability for estimated &arranty costs of "$0,000 on January 1, 2013. )uring the current year, the entity sold ,000 units for total of ",000,000 and paid &arranty claims of "0,000 on current and prior year sales. +hat is the &arranty liability on )ecember 31,2013 a. b. c. d.
20,000 30,000 00,000 0,000
Problem 1-19 !difice Company pro#ides e(tended ser#ice contracts on electronic euipment sold through ma@or retailer. The standard contract is for three years. )uring the current year, the entity pro#ide *2,000 such &arranty contracts at an a#erage price of -1 each. /elated to these contracts, the entity spent "*00,000 ser#icing the contracts during the current year and e(pected to spend "2,100,000 more in future. +hat amount of net income should be recogniAed in the current year related to these contracts a. 3,*02,000 b. 1,13*,000 c. 02,000 d. 3*,000
Problem 1-20 Toyo Company o&ns a car dealership that it uses for ser#icing cars under &arranty. The entityBs e(perience &ith &arranty claims is that $0% of all cars sold in a year ha#e Aero defect, and 1% of all cars sold in a year ha#e significant defect. The cost of rectifying a normal defectB in a car is "10,000. The cost of rectifying a significant defectB in a car is 30,000. The entity sold 00 cars during the year. +hat is the e(pected #alueB of the pro#ision for &arranty for the current year a. b. c. d.
3,00,000 1,0,000 1,*00,000 *,000,000
Pro)lem %*#% Chato Company sold electrical goods co#ered by a one8year &arranty for any defects. f the sales of "0,000,000 or the year, the entity estimated that 3% &ill ha#e ma@or defect,% &ill ha#e minor defect and 2 &ill ha#e no defect. The costs of repairs &ould be ",000,000 if all the products sold had ma@or defect and "3,000,000 if all had minor defect. +hat amount should be recogniAed as a &arranty pro#ision a. -,000,000 b. ,$00,000 c. 300,000 d. 10,000
Problem 1-22 7iAarre Company gi#es &arranties at the time of sale to purchase of its product, The entity undertaes to tae good, by repair or replacement, manufacturing defects that become apparent &ithin one year from the date of sale. 6ales of "10,000,000 &ere made e#enly throughout 2013. The e(penditures for &arranty repairs and replacement for the products sold in 2013 are e(pected to be made 0% in 2013 and 0% in 201*. The 201* outflo&s of economics benefits related to the &arranty &ill tae place on June 20,201*. The entity estimated that %of products sold reuire no &arranty repairs,3% of products sold reuire minors repair costing 10% of the sale price, and 2%of products sold reuire ma@or repairs or replacement costing 0%of sale price. The appropriate discount factor for cash flo&s e(pected to occur on June 30,201* is 0.*. 4n appropriate ris ad@ustment factor to reflect the uncertainties in the cash flo&
estimates is an increment of $% to theprobability8&eighted e(pected cash flo&s. +hat is the &arranty pro#ision on )ecember 31, 2013. a. b. c. d.
210,000 222,$00 111,300 10,3
Problem 1-23 ?umaniAer Company gi#es &arranties at the time of sale to purchasers of its product. Dnder the terms of the sale,the entity undertaes to mae good, by repair or replacement, manufacturing defects that become apparent &ithin one year from the date of sale. n )ecember 31,2013, the entity appropriately recogniAed "0,000 &arranty pro#ision. The entity incurred and charged "1*0,000 against the &arranty pro#ision in 201*. ut of the "1*0,000, an amount of "-0,000 related to &arranties for sales made in 201*. The increase during 201* in the discounted amount recogniAed as a pro#ision on )ecember 31,2013 arising from the passage of time is "2,000. n )ecember 31,201*, the entity estimated that &ould incur e(penditures in 201 to meet its &arranty obligations on )ecember 231,201* as follo&s 5 % probability of "*00,000 20% probability of "200,000 0% probability of " -0,000 2% probability of " 20,000 4ssume for simplicity that the 201 cash flo&s for &arranty repairs and replacements tae place on June 30,201. 4n appropriate discount rate is 10% per year. The "E of 1 at 10% for ane year is 0.1 and the "E of 1 at 10% for $months is 0,. 4n appropriate ris ad@ustment factor to reflect the uncertainties in the cash flo& estimate is an increment of -% to the probability8&eighted e(pected cash flo&s. +hat is the &arranty e(pense to be recogniAed in 201* a. b. c. d.
10,30 1,30 1-,30 1-.000
DEFERRED REVENUE Problem 2-1 Cobb )epartment 6tore sells gift certificates redeemable only &hen merchandise is purchased. These gift certificates ha#e no e(piration date. Dpon redemption or e(piration, the entity recogniAes the unearned re#enue as realiAed. Information for the current year as follo&s5 Dnearned re#enue, January 1,2013
$0,000
Fift certificates sold
2,20,000
Fift certificates redeemed
1,0,000
Fift certificates e(pected not to be redeemed Cost of Foods sold
100,000
%$n )ecember 31,2013, &hat amount should be reported as unearned re#enue a. b. c. d.
10,000 0,000 -0,000 0,000
Problem 2-2 /egal )epartment 6tore sells gift certificates, redeemable for store merchandise and &ith no e(piration date. The entity has follo&ing information pertaining to the gift certificate sales and redemption5 Dnearned re#enue on January 1,2013 2013 sales 2013 redemptions of prior year of sales 2013 redemption of current year sales
0,000 2,00,000 20,000 1,0,000
n )ecember 31,2013, +hat amount should be reported as unearned re#enue a. 1,20,000 b. 1,12,000 c. 1,000,000 d. 00,000
Problem 2-3 Marr Company sells its products in reusable containers. The customer is charged a deposit for each container deli#ered and recei#es a refund for each container and returned &ithin t&o years after the year of deli#ery. The entity accounts for the containers not returned &ithin the time limit as being retired by sale at the deposit amount. Information for 2013 is as follo&5 Container deposits on )ecember 31,2012 from deli#eries in5 2011
10,000
2012
*30,000
)eposit for containers deli#ered in 2013
-0,000 -0,000
n )ecember 31,2013, &hat is the liability for deposits a. b. c. d.
**,000 -*,000 $*,000 3*,000
Problem 2-4 'ell Company operates retail grocery store that is reuired by la& to collect refundable deposit of " on soda cans. Information for the current year follo&s5 >iability for refundable deposit January 1
10,000
Cans of soda sold
100,000
6oda cans return
110,000
)uring current year, the entity subleased space and recei#e a "2,000 deposit to be applied against rent at the e(piration of the lease in years. +hat amount should be reported as current liability for deposit on )ecember 31 a. b. c. d.
12,000 1*0,000 100,000 2,000
Problem 2-5 Gent Company sells magaAine subscription of one to three year periods. Cash receipt from subscribers are credited to magaAine subscriptions collected in ad#ance, and this account has a balance of "2,*00,000 on )ecember 31,2013 e(pires as follo&5
)uring 201*
$00,000
)uring 201
00,000
)uring 201$
*00,000
n )ecember 31,2013, &hat amount should be reported as magaAine subscription collected in ad#ance a. 00,000 b. 1,200,000 c. 1,00,000 d. 2,*00,000
Problem 2-6 Freene Company sells office euipment ser#ice contracts agreeing to ser#ice euipment for t&o8year period. Cash receipt from contracts are credited to unearned ser#ice contract re#enue and ser#ice contract cost are charged to ser#ice contract e(pense as incurred. /e#enue from ser#ice contracts is recogniAed as earned o#er the li#es of the contracts. 4dditional information for the year ended )ecember 31,2013 is as follo&5 Dnearned ser#ice contract re#enue at January 1
$00,000
Cash receipt from ser#ice contract sold
-0,000
6er#ice contract re#enue recogniAed
-$0,000
6er#ice contract e(pense
20,000
+hat amount should be reported as unearned ser#ice contract re#enue on )ecember 31,2013 a. b. c. d.
*$0,000 *-0,000 *0,000 20,000
Problem 2-7 /yan Company sells ma@or household appliance ser#ice contracts for cash. The ser#ice contracts are for a one8year, t&o8year, or three8year period. Cash receipt from contract are credited to unearned ser#ice contact re#enue. This account has a balance of "20,000 on )ecember 31,2013 before year8end ad@ustment. 6er#ice contract costs are charged as incurred to the ser#ice contract e(pense account, &hich has a balance of "1-0,000 on )ecember 31,2013 outstanding ser#ice contracts on )ecember 21,2013 e(pire as follo&s5 )uring 201*
10,000
)uring 201
22,000
)uring 201$
100,000
+hat amount should be reported as unearned ser#ice contract re#enue on )ecember 31,2013 a. b. c. d.
*0,000 *,000 2,000 2*,000
Problem 2-8 )unne Company sells euipment ser#ice contracts that co#er a t&o8year period. The sale price of each contract is "$00. The past e(perience is that, of the total pesos spent for repairs on ser#ice contracts, *0% e#enly during the second contract year. The entity sold 1,000 contract e#enly throughout 2013.+hat amount should be reported as deferred ser#ice re#enue on )ecember 31,201* a. b. c. d.
*0,000 *-0,000 3$0,000 300,000
Problem 2-9 Cobb Company sells appliance ser#ice contract ageing to repair appliances for a t&o8 year period. The past e(perience is that, of the total amount spent for repairs on ser#ice contract, *0%is incurred e#enly during the first contract year and $0% e#enly during the second contract year. /eceipt from ser#ice contract sales are "00,000 for 2013 and "$00,000 for 201*./eceipet from contract are credited to unearned ser#ice contract re#enue. 4ll sales are made e#enly during the year. +hat amount should be reported as unearned re#enue on )ecember 31,201*
a. b. c. d.
3$0,000 *0,000 *-0,000 $30,000
Problem 2-10 ?art Company sells subscription to a specialiAed directory that is publish semiannually and shipped to subscribers on 4pril 1 and ctober 1.6ubscription recei#ed after the March 31 and 6eptember 30 cut8off dates are held for the ne(t year and is credited to deferred re#enue from subscriptions. )ata relating to 2013 are as follo&s5 )effered re#enue from subscription8January 1
1,00,000
Cash receipt from subscribers
,200,000
n )ecember 31,2013, &hat amount should be reported as deferred re#enues subscription a. b. c. d.
1,-00,000 3,300,000 3,$00,000 ,*00,000
Problem 2-11 A!e""e +ideo ompa!, sells %*amd #*,ear su)scrip"io! for i"s -ideo of "he mo!"h )usi!ess. /u)scrip"io! are collec"ed i! ad-a!ce a!d credi"ed "o sales. A! a!al,sis of "he recorded sales ac"i-i", re-ealed "he follo0i!g1
/ales Less ca!cela"io! &$2$$$ Ne" sales
#$%&
#$%'
'#$2$$$
3$$2$$$
#$2$$$ '$$2$$$
/u)scrip"io! e(pira"io!1 #$%&
%#$2$$$
#$%' %&$2$$$
%332$$$
'4$2$$$
#$%3 #$$2$$$
%#32ooo
#$%5
%'$2$$$ '$$2$$$
'4$2$$$
6! Decem)er &%2#$%'2 0ha" amou!" should )e repor"ed as u!ear!ed su)scrip"io! re-e!ue7 a. ). c. d.
'832$$$ '4$2$$$ '532$$$ &'$2$$$
Problem 2-12 )unn Company records stamp ser#ice re#enue and pro#ides for the cost of redemptions in the year stamps are sold to license. The past e(perience indicates that the only -0% of the stamps sold to license &ould be redeem. The liability for stamp redemption &as "$,000,000 on January 1,2013. 4dditional information for 2013 is as follo&5 6tamp ser#ice re#enue from stamps sold to license
,000,000
Cost of redemption of stamps sold prior to 1H1H2013
2,0,000
If all the stamps sold in 2013 &ere presented for redemption in 201*, the redemption cost &ould be "2,2,000. +hat amount should be reported as a liability for stamp redemption on )ecember 31, 2013. a. b. c. d.
,20,000 ,00,000 ,00,000 3,20,000
Problem 2-13 Fail Company manufactures furniture upholstery according to specification. 4 nonrefundable deposit of 10% of the contract price is reuire from the customers. The deposit is credited to a customerBs ad#ances account &hich has a balance of "-0,000 on January 1, 2013. In 2013, the entity recei#ed and accepted orders &ith the total contract price of 12,*00,000. n )ecember 31, 2013, the entity had already made shipments to customers of ,$0,000 &hile orders for "1,200,000 &ere canceled and sales of -0,000 &ere returned for minor design modifications. +hat is the balance of the customerBs ad#ance on )ecember 31,2013 a. 1,12,000
b. 1,00,000 c. 1,03$,000 d. 1$,000
Problem 2-14 7lac Company reuires ad#ance payments &ith special orders for machinery constructed to customers specifications. These ad#ances are non refundable. Information for the current year as follo&5 4d#ance from customer8 January 1
1,1-0,000
4d#ance recei#ed &ith orders
1,-*0,000
4d#ance applied to orders shipped
1,$*0,000
4d#ance applicable to orders canceled
00,000
+hat amount should be reported as current liability for ad#ances from customers at year8end
a. 1,*-0,000 b. 1,3-0,000 c. --0,000 d. 0
Problem 2-15 >o#ie Company offers three payments on 6eptember 1, 2013, and 32*,000 of monthly fees during the period 6eptember 1 though )ecember 31,2013. n )ecember 31,2013, &hat amount should be reported as deferred re#enue a. b. c. d.
330,000 *3-,000 $$0,000 0,000
ACCRUED LA!L"E#
Problem 3-1 Gemp Company must determine the )ecember 31,2013 accruals for ad#ertising and rent e(pense. 4 "0,000 ad#ertising bill &as recei#ed January , 201*, comprising cost of "3,000 for ad#ertisements in )ecember 2013 issues, and "1,000 for ad#ertisements in January 201* issues of the ne&s paper. 4 6tore lease, effecti#e )ecember 1$,2013,calls for fi(ed rent of "120,000 per month, payable one month from the effecti#e date and monthly thereafter. In addition, rent eual to % of net sales o#er "$,000,000 per calendar year is payable on January 31, of the follo&ing year. ;et sales for 2013 totaled ",000,000. n )ecember 31,2013, &hat amount should be reported as accrued liabilities a. b. c. d.
2$0,000 1-,000 210,000 2*,000
Problem 3-2 6onia Company reported gross payroll of "$00,00 for the month of January. The entity paid the payroll net of the follo&ing deduction5 Income ta(
0,000
666
10,000
"hilhealth
,000
"agibig
,000
In addition, the entity recogniAed its additional contribution for the follo&ing in relation to January payroll5 666
1,000
"hilhelath
$,000
"agibig
-,000
+hat is the total payroll ta( liability a. 121,000 b. 0,000 c. 2,000 d. 2,000
Problem 3-3 Chester Company reported payroll for the month of January 2013 as follo&s5 Total &ages
00,000
Income ta( &ithheld
$0,000
4ll &ages paid &ere sub@ect to 666. The 666 ta( rates &ere % each for employee and employer. Chester remits payroll ta(es on the th of the follo&ing month. In the financial statements for the month ended January 31,2013, +hat amount should be reported respecti#ely as total payroll ta( liability and payroll ta( e(pense a. b. c. d.
$0,000 and 0,000 ,000 and 0,000 ,000 and 3,000 13,000 and 3,000
Problem 3-4 Miyui Company operates a retail store. 4ll items are sold sub@ect to a12% #alue added ta(., &hich entity collects and record sales re#enue. The entity files uarterly sales ta( returns &hen due by the t&entieth day follo&ing the end of the sales uarter. ?o&e#er, in accordance &ith state reuirements, the entity remits #alue added ta( collected by the t&entieth day of the month follo&ing any month such collection e(ceed "0,000. The entity taes this payments as credits on the uarterly sales ta( return. The #alue added ta(es paid by the entity are charged against sales re#enue. 'ollo&ing is a monthly summary appearing in the first uarter 2013 sales re#enue account5 Debit
Credit
January
8
$0,000
'ebruary
$0,000
33,000
March
8
**-,000
n March 31,2013, &hat amount should be reported as #alue added ta(es payable a. 10,000 b. 1$-,000 c. 10-,000 d. 0,000
Problem 3-5
Marie ?otel collects 1% in city sales ta(es on room rental in addition to a "200 per room, per night, occupancy ta(. 6ales ta(es for each month are due at the end of the follo&ing month, and occupancy ta(es are due fifteen days after the end of each calendar uarter. n January 3,201*, the entity paid the ;o#ember 2013 sales ta(es and the fourth uarter 2013 occupancy ta(es. 4dditional information for the fourth uarter of 2013 is as follo&5 Room rentals
Room nights
ctober
1,000,000
1,100
;o#ember
1,100,000
1,200
)ecember
1,00,000
1,-00
+hat amount should be reported respecti#ely as sales ta(es payable and occupancy ta(es payable on )ecember 31,2013 a. b. c. d.
30,000 and $00,000 30,000 and -20,000 *0,000 and $00,000 *0,000 and -20,000
Problem 3-6 Dnder state la&, 6tephen Company may pay 3% of eligible gross &ages or it may reimburse the state directly for actual unemployment claims. The entity belie#es that actual unemployment claims &ill 2% of eligible gross &ages and has chosen to reimburse the state. !ligible gross &ages are defined as the first "100,000 of gross &ages paid to each employee. The entity had fi#e employees, each of &hom earned "200,000 during 2013. n )ecember 31,2013, &hat amount should be reported as liability for unemployment claims a. 10,000 b. 1,000 c. 20,000 d. 0
Problem 3-7 4ubrey Company has a 128month accounting period ending )ecember 31. n 4pril 1, 2013.It introduce a ne& contractual bonus scheme co#ering the year to March 31 each year. It is reasonably anticipated that the bonuses for the year to March 31,201* &ill amount to "00,000. +hat amount of liability bonuses should be recorded on )ecember 31 a. 22,000 b. 00,000
c. $,000 d. 0
Problem 3-8 /onald Company has an incenti#e compensation plan under &hich branch manager recei#ed 10% of the branch income after deduction of the bonus but before deduction of income ta(. 7ranch income for the current year before the bonus and income ta( &as "1,$0,000. The ta( rate is 301%. +hat is the bonus of the current year a. b. c. d.
12$,000 10,000 1$,000 1-0,000
Problem 3-9 4fter three profitable year. Cairo Company decided to offer a bonus to the branch manager of 2% of income o#er "1,000,000 earned by the branch. The income for the branch &as "1,$00,000 before ta( and bonus for the current year. The bonus s computed on income in e(cess of "1,000,000 after deducting the bonus but before deducting e(cess of 1,000,000 after deducting the bonus but deducting ta(. +hat is the bons if the branch manager for the current year a. b. c. d.
120,000 10,000 20,000 320,000
Problem 3-10 The bonus agreement of Christian Company pro#ides that the general manager shall recei#e an annual bonus of 10% of the net income after bonus and ta(. The income ta( rate is 30%. The general manager recei#ed "2-0,000 for the current year as bonus. +hat is the income before bonus and ta( a. 2$2,00 b. 20,000 c. 1,3$
d. 1-$,*-
Problem 3-11 Tobru Company has an agreement to pay its sales manager a bonus of % of the income after bonus and after ta(. The income for the year before bonus and ta( is ",20,000. The ta( rate is 30% of income after bonus. +hat is the bonus of the year a. b. c. d.
2$2,00 20,000 1,3$ 1-$,*-
Problem 3-12 n July 1, 2013, the ueAon City go#ernment issued realty ta( assessment for the fiscal year ended June 30,201*. n 6eptember 1, 2013, uma Company purchased a land in ueAon City. The purchase price &as reduced by a credit for accrued reality ta(es. The entity does not record the entire yearBs real estate ta( obligation but instead records ta( e(pense at the end of each month by ad@usting prepaid real estate ta(es or real estate ta(es payable as appropriate. ;o#ember 1,2013, the entity paid the first of t&o eual installments of "$00,000 for real ta(es. +hat amount of the payment should be recorded as a debit to real estate ta(es payable a. b. c. d.
200,000 *00,000 00,000 $00,000
Problem 3-13 >eslie Company pays all salaries employees on a Monday for the fi#e8day &or &ee ended the pre#ious 'riday. The last payroll recorded for the year ended )ecember 31,2013 &as for the &ee ended )ecember 2, 2013. The payroll for the &ee ended January 1,201* included regular &eely salaries of "-0,000 and #acation pay "2,000 for the #acation time earned in 2013 not taen by )ecember 31,2013. The entity has accrued a liability of "10,000 for a #acation pay on )ecember 31,2012. n )ecember 31,2013, &hat amount should be reported as accrued salary and #acation pay a. b. c. d.
$*,000 $-,000 $,000 -,000
Problem 3-14 Gent Company, a di#ision of ;ational /ealty Corporation maintains escro& accounts and pays real estate ta(es for ;ationalBs mortgage customers. !scro& fund are ept in interest8bearing accounts. Interest, less a 10% ser#ice fee, is credited to the mortageeBs account and use to reduce future escro& payments. !scro& accounts liability8 January 1
00,000
!scro& payments recei#ed during the year
1,-0,000
/eal !state ta(es paid during the year
1,20,000
Interest on escro& funds
0,000
+hat is escro& accounts liability on )ecember 31 a. b. c. d.
10,000 1,000 $0,000 $10,000
Problem 3-15 n the first day of each month, 7ell Company recei#ed from Gent Company an escro& deposit of "20,000 for real estate ta(es. 7ell Company recorded the "20,000 in an escro account. The 2013 real estate ta( is "2,-00,000, payable in eual installment on the first day each calendar uarter. n January 1,2013, the balance in the escro& account &as "300,000, n 6eptember 30,2013, +hat amount should be reported as escro& liability a. 1,10,000 b. *0,000 c. -0,000 d. 10,000
