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Chapter 11: Q7RQ (page 603)
What is the difference between gross pay and net pay?
The difference between the gross pay and net pay is the deductions that we made by the employer. Gross pay is the entitled benefit and net pay is the receivable benefit.
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Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail Runner dealer in Colorado Springs made sales totaling \(600,000 during 2018. The company received cash for 20% of the sales and notes receivable forthe remainder. Warranty payments totaled \)10,000 during 2018.
Requirements
Record the sales, warranty expense, and warranty payments for the company.
Ignore cost of goods sold.
Lucy Rose works at College of Fort Worth and is paid $12 per hour for a 40-hour workweek and time-and-a-half for hours above 40.
Requirements
1. Compute Rose鈥檚 gross pay for working 60 hours during the first week of February.
2. Rose is single, and her income tax withholding is 15% of total pay. Rose鈥檚 only payroll deductions are payroll taxes. Compute Rose鈥檚 net (take-home) pay for the week. Assume Rose鈥檚 earnings to date are less than the OASDI limit.
3. Journalize the accrual of wages expense and the payment related to the employment of Lucy Rose.
What are the two main controls for payroll? Provide an example of each.
When do businesses record warranty expenses, and why?
The following transactions of Belkin Howe occurred during 2018:
Apr. 30 Howe is party to a patent infringement lawsuit of \(230,000. Howe鈥檚 attorney is certain it is remote that Howe will lose this lawsuit.
Jun. 30 Estimated warranty expense at 3% of sales of \)390,000.
Jul. 28 Warranty claims paid in the amount of \(6,300.
Sep. 30 Howe is party to a lawsuit for copyright violation of \)90,000. Howe鈥檚 attorney advises that it is probable Howe will lose this lawsuit. The attorney estimates the loss at \(90,000.
Dec. 31 Howe estimated warranty expense on sales for the second half of the year of \)520,000 at 3%.
Requirements
1. Journalize required transactions, if any, in Howe鈥檚 general journal. Explanations are not required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?
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