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Chapter 11: 3RQ (page 603)
How is sales tax recorded? Is it considered an expense of a business? Why or why not?
No, sales tax is not considered an expense of a business.
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On January 1, Irving Company purchased equipment of \(280,000 with a long-term note payable. The debt is payable in annual installments of \)56,000 due on December 31 of each year. At the date of purchase, how will Irving Company report the note payable?
The income statement for California Communications follows. Assume California Communications signed a 3-month, 9%, $3,000 note on June 1, 2018, and that this was the only note payable for the company.
Requirements
1. Fill in the missing information for California鈥檚 year ended July 31, 2018, income statement. Round to the nearest dollar.
2. Compute the times-interest-earned ratio for the company. Round to two decimals.
When do businesses record warranty expenses, and why?
Recording employer payroll taxes and employee benefits Ricardo鈥檚 Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).
Requirements
Golden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15 work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted employees. The home office staff consists of an accountant and an office manager.
Because employee turnover is high in the construction industry, supervisors hire and fire their own crews. Supervisors notify the office of all personnel changes. Also, supervisors forward the employee W-4 forms to the home office. Each Thursday, the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paychecks for distribution to the workers at 5 p.m.
The company accountant prepares the payroll, including the paychecks. Beavers signs all paychecks. To verify that each construction worker is a bona fide employee, the accountant matches the employee鈥檚 endorsement signature on the back of the canceled paycheck with the signature on that employee鈥檚 W-4 form.
Requirements
Discuss a control feature that the company can use to safeguard against the fraud you identified in Requirement 1.
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