Question

The payroll register for Gamble Company for the week ended April 29 indicated the following:

Salaries	$1,440,000
Social security tax withheld	86,400
Medicare tax withheld	21,600
Federal income tax withheld	288,000

In addition, state and federal unemployment taxes were calculated at the rate of 5.4% and 0.6%, respectively, on $244,000 of salaries.

	Required:
A.	Journalize the entry to record the payroll for the week of April 29.*
B.	Journalize the entry to record the payroll tax expense incurred for the week of April 29.* *Refer to the Chart of Accounts for exact wording of account titles.

2.

Accrued Product Warranty

Parker Manufacturing Co. warrants its products for one year. The estimated product warranty is 3% of sales. Assume that sales were $286,000 for January. In February, a customer received warranty repairs requiring $230 of parts and $80 of labor.

For a compound transaction, if an amount box does not require an entry, leave it blank.

a. Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty.

b. Journalize the entry to record the warranty work provided in February.

Quick Ratio

Gmeiner Co. had the following current assets and liabilities on December 31 of two recent years:

				Current Year		Previous Year
Current assets:
	Cash			$933,000		$1,016,000
	Accounts receivable			827,000		478,000
	Inventory			510,000		403,000
		Total current assets		$2,270,000		$1,897,000
Current liabilities:
	Current portion of long-term debt			$141,000		$125,000
	Accounts payable			282,000		249,000
	Accrued and other current liabilities			457,000		456,000
		Total current liabilities		$880,000		$830,000

a. Determine the quick ratio for December 31 of both years. If required, round your answers to one decimal place.

	Quick Ratio
Previous year:
Current year:

b. How did the quick ratio change between the two balance sheet dates?

Answer 1

Answer for the question 1

Recording the journal entry for payroll and taxes

Given information from the question:

Salaries	$1,440,000
Social security tax withheld	$ 86,400
Medicare tax withheld	$ 21,600
Federal income tax withheld	$ 288,000
State unemployment taxes ($244,000 *5.4%)	$13,176
Federal unemployment taxes ($244,000 *0.6%)	$ 1,464

To record payroll journal entry and payroll tax expense entry, we can combine both the journal entries for better understanding purpose:

Particulars	Debit	Credit
Salaries expense a/c   -Dr	$1,440,000
Payroll taxes a/c   -Dr	$ 410,640
To Bank a/c		$1,440,000
To Social Security tax withheld payable a/c		$ 86,400
To Medicare tax withheld payable a/c		$ 21,600
To Federal income tax withheld payable a/c		$ 288,000
To State unemployment taxes payable a/c		$13,176
To Federal unemployment taxes payable a/c		$ 1,464

  

Assuming that the salaries are paid now, I have used bank ledger. If company is accruing salaries then instead of bank a/c we can use salaries payable account by creating the liability

Assuming that the other taxes are not paid now and it is paid on the due date, the above entry recorded. As and when due date arises for the payment of taxes then the below entry will be passed

Particulars	Debit	Credit
Social Security tax withheld payable a/c	$ 86,400
Medicare tax withheld payable a/c	$ 21,600
Federal income tax withheld payable a/c	$ 288,000
State unemployment taxes payable a/c	$13,176
Federal unemployment taxes payable a/c	$ 1,464
To bank a/c		$410,640

Question 2

Recording entry for accrued product warranty:

   Given information:

Sales for the month of January    $286,000

Estimated product warranty is 3% of sales : $286,000*3%= $8,580

During February, customer received warranty repairs ($230+$80) = $310

Warranty expense is recognized in the same period as the sales for the products that were sold, if it is probable that an expense will be incurred and the company can estimate the amount of the expense. This is called the matching principle, where all expenses related to a sale are recognized in the same reporting period as the revenue from the sale transaction.

Thus, the income statement is impacted by the full amount of warranty expense when a sale is recorded, even if there are no warranty claims in that period. As claims appear in later accounting periods, the only subsequent impact is on the balance sheet, as the warranty liability and inventory accounts are both reduced.

1. Journal entry to record accrued warranty on jan 31^st
   1. Warranty expense a/c –Debit                             $8,580

To Estimated warranty liability a/c                      $8,580

2. Journal entry to record warranty work in February
   1. Estimated warranty liability a/c                         $310

To Inventory a/c                                                            $230

To Wages payable a/c                                                   $80

Answering Question 3

The quick ratio is also known as the acid test ratio. The quick ratio compares the total amount of cash and cash equivalents + marketable securities + accounts receivable to the amount of current liabilities.

1. Formula to calulate quick ratio:                Cash equivalents + marketable securities + accounts receivable                                                                                                                  Current liabilities

Previous year quick ratio:    ($1,016,000+478,000)/ ($830,000) = 1.8

Current year quick ration:   (933,000+827,000)/ ($880,000) = 2

2. Analysis on quick ratio for both the years:

The acid test ratio measures the liquidity of a company by showing its ability to pay off its current liabilities with quick assets. If a firm has enough quick assets to cover its total current liabilities, the firm will be able to pay off its obligations without having to sell off any long-term or capital assets

The above quick ratio from the previous year to the current year has been increased. Higher quick ratios are more favorable for companies because it shows there are more quick assets than current liabilities. This also shows that the company could pay off its current liabilities without selling any long-term assets. An acid ratio of 2 shows that the company has twice as many quick assets than current liabilities.