Journal entries for payroll, sales; liability, lease

I5-1:

The following information is available concerning The Blue Collar Company's payroll for November, 2009:

Employee Date of Hire October Year to Date Earnings November Earnings Federal Income Tax Withheld State Income Tax Withheld

Z. Allen 1/6/2002 $104,000 $10,600 $3,200 $250
G. Burns 9/1/2009 6,000 3,000 600 45
C. Gunn 5/1/2001 100,000 10,000 3,000 225
B. Stark 11/1/2001 0 3,500 700 55
K. Veil 3/1/2003 110,000 11,000 3,500 265

Blue Collar pays wages monthly.

The O.A.S.D.I. rate is 6.2% on the first $106,800 of earnings.

The Hospital Insurance tax is 1.45%.

The federal unemployment tax is 6.2% on the first $7,000 of earnings.

The state unemployment tax is 5.5% on the first $7,000 of earnings. However, because of Blue Collar's excellent merit rating, the rate has been reduced to 2.5%. Employees do not pay state unemployment taxes.

Instructions:

1. Prepare the journal entries necessary to record the November payroll and all taxes.

I5-2:

The Hill Valley Company had the following gross sales on Tuesday March 3rd:

Credit Sales: $45,950.67

Cash Sales: $23,575.45

The sales include the state's 5.5% sales tax.

Instructions:

1. Prepare the journal entry to properly record the day's sales.

I5-3:

Consider the following independent situations of the Back Fire Corporation (BFC):

1. A BFC deliver truck was involved in an accident with a private automobile. BFC carries an insurance deductible of $25,000 per accident. That is, BFC must pay the first $25,000 of any costs as a result of a traffic accident. The driver of the automobile was slightly injured and the damage to the automobile was approximately $8,000. The insurance adjustor estimated that the total cost to repair the automobile and for the driver's injuries will be about $10,000. The accident was a result of the automobile running a stop sign and the adjustor advises that it is unlikely that BFC will be required to pay for the automobile repairs or the driver's injury.

2. BFC sued the ABC Company for a patent infringement issue. BFC lawyers indicate that they are 100% sure that BFC will win the suit and collect $200,000 from ABC.

3. A retaining wall at one of BFC's factories failed and caused a mud slide that damaged the building next door belonging to the XYZ Company. BFC has admitted responsibility and has received bids from three contractors to repair the damage. The estimated were $103,000; $77,500; and $154,000.

4. A leak at an underground storage tank contaminated the adjacent property belonging to the PDQ Company. The approximate costs to repair the damage is $45,000 and BFC's insurance should reimbursement BFC for the costs except for the deductible of $5,000.

Instructions:

1. For each of the above situations determine the amount that should be recorded as a contingent liability, if any.

I5-4:

The XYZ Company entered into the following leasing arrangements, as the lessee, during the current year:

A. XYZ leased a copy machine for 3 years. The fair market value of the machine at the inception of the lease was $17,500 and XYZ agreed to pay a quarterly lease payment of $1,475. At the end of the lease the remaining life is estimated to be 2 years and XYZ has the option to purchase the copy machine for its then estimated fair market value of $5,000.

B. XYZ leased a mid-range computer for 4 years. The fair market value of the computer at the inception of the lease was $139,000 and XYZ agreed to pay a quarterly lease payment of $9,000. At the end of the lease the remaining life is estimated to be 2 years. XYZ has no option to purchase the computer at any time during the lease term.

C. XYZ leased a new car for 2 years for its president's use. The fair market value of the car at the inception of the lease was $65,000 and XYZ agreed to pay a quarterly lease payment of $5,750. At the end of the lease the remaining life is estimated to be 4 years. XYZ has no option to purchase the car at any time during the lease term.

D. XYZ leased a delivery truck for 5 years. The fair market value of the truck at the inception of the lease was $84,000 and XYZ agreed to pay a quarterly lease payment of $4,500. At the end of the lease the fair market value of the truck is estimated to be $24,000 and the truck's remaining economic life is estimated to be 2 years. XYZ has the option to purchase the truck at the end of the lease for $10,000.

E. XYZ leased a collation machine for 6 years. The fair market value of the machine at the inception of the lease was $142,000 and XYZ agreed to pay a quarterly lease payment of $6,750. At the end of the lease, the ownership of the machine transfers to XYZ.

F. XYZ leased a widget production machine for 7 years. The fair market value of the machine at the inception of the lease was $246,000 and XYZ agreed to pay a quarterly lease payment of $11,000. XYZ has no option to purchase the machine at any time during the lease term.

XYZ current borrowing rate is 10%.

All lease payments are made in advance at the beginning of each quarter.

Instructions:

1) Determine if each lease is an operating or a capital lease.

2) For each capital lease, identify the factor or factors that qualify the lease as a capital lease. Include the appropriate calculations to support your conclusions.