Question

Spreadsheet Assignments 42. Assume that Wilson Sporting Goods completed these selected transactions during December PARTIAL BALANCE SHEET 79 20x6: a. Champs, a chain of sporting goods stores, ordered $15,000 of tennis and golf equipment. With its order, Champs sent a check for $15,000 in advance. Wilson will ship the goods on January 3, 20x7. The December payroll of $195,000 is subject to employee withheld income tax of 9%, FICA tax of 8% (employee and employer), state unemployment tax of5.4%, and federal unemployment tax of0.8 percent. OnDecember 31, Wilson pays employees but accrues all tax amounts. Sales of $1,000,000 are subject to estimated warranty cost of 1.4 percent. On December 2, Wilson signed a $100,000 note payable that requires annual payments of $20,000 plus 9% interest on the unpaid balance each December 2nd. b. c. d. Classify each liability as current or long-term, and prepare a partial balance sheet showing liabilities above, as of December 31, 20x6.

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Answer 1

a. In this transaction, Wilson had sold goods by taking advance of $15,000 and the delivery of goods will be on January 3, 2007. Here, we will pass the journal entry as Bank Account Debit & Advance received A/c credit. The nature of the liability here is current liability as Wilson has to deliver the goods in next month itself.

b. Here, Wilson has accrued all the taxes payable i.e Income Tax of $17,550 (195,000*9%); FICA tax of $15,600 (195,000*8%); State Unemployment tax of $10,530 (195,000*5.40%) and Federal Unemployment tax of $1,560 (195,000*0.80%). Here also the nature of liability is current in nature.

c. Here the sales are subject to warranty and its cost is estimated at 1.40%. The provision for warranty will be at $14,000 ($1,000,000*1.4%). Here also the liability is current in nature.

d. Here the Wilson has signed Notes Payable of $100,000 which is to be paid as $20,000 each year with 9% interest on unpaid balance. In this case, $20,000 which is to be paid in next december, is of the nature of current liability and $80,000 are long term in nature.

LIABILITIES	AMOUNT
LONG TERM LIABILITIES :
Notes Payable	$       80,000
CURRENT LIABILITIES
Advance Received	$       15,000
Income Tax Payable	$       17,550
FICA Tax payable	$       15,600
State Unemployment Tax Payable	$       10,530
Federal Unemployment Tax Payable	$         1,560
Warranty Liability Payable	$       14,000
Current Maturity of Notes Payable	$       20,000