Youve just started your first accounting job as the accounts

You’ve just started your first accounting job, as the accounts payable and payroll clerk for Copperfield and Company, a provider of delicate wine glasses to restaurants. Your predecessor left his job suddenly, and was not able to complete all his tasks before leaving. You need to get up to speed and complete the unfinished tasks as soon as possible.

Your tasks on your first day are the following:

1. Review the payroll register to determine if there are any errors or omissions.

2. Calculate the relevant amounts for the company’s note payable and determine whether your predecessor’s journal entries are correct.

3. Make a recommendation as to whether the company should journalize any warranty expense for the month.

You decide to get started - the sooner the better!

CHART OF ACCOUNTS

Since this is your first day, you’re relieved to find that the company has only three employees in the main office that have not yet been reviewed. The partial payroll register for these employees is below. Some data is missing, and other data may be in error. Each of these employees earns $18.00 per hour, and the company follows the Fair Labor Standards Act in paying overtime to its employees. You have been assured that the Federal Income Tax withholding and check numbers are correct, so you do not need to check those figures.

Note 1: For 2015, the social security tax rate was 6.2% and the medicare tax rate was 1.45%. However, for text examples and problems, including this one, use rates of 6% for social security tax and 1.5% for medicare tax.

Note 2: Earnings subject to the social security tax are limited to an annual threshold amount, but for text examples and problems, including this one, assume all accumulated annual earnings are below this threshold and subject to the tax.

Review the payroll register below, which was prepared by your predecessor, and then scroll down to complete a corrected payroll register. If there is no amount or an amount is zero, enter “0”. Round your interim computations to the nearest cent, if required.

Copperfield and Company issued a 90-day, 5.00% note for $190,000 to a creditor on account. The previous clerk entered the following journal entries to record the note on July 10, and the payment of the note at maturity.

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JOURNAL

1

Jul. 10

Accounts Payable

190,000.00

2

Notes Payable

190,000.00

3

Notes Payable

199,500.00

4

Accounts Payable

190,000.00

5

Interest Expense

9,500.00

You notice that the journal entry for recording the note on July 10 is correct, but the entry for the payment of the note at maturity (including interest) did not have a date and was not correct.

Show the journal entry for payment of the note at maturity as it should have been entered. Don’t forget to include the date. Assume a 360-day year.

PAGE 25

JOURNAL

1

2

3

Copperfield and Company has decided to provide a warranty on its products. The previous clerk left a note with his files on this new warranty on glass breakage. He decided that an entry for warranty expense was not necessary, with the following reasoning:

“Our product is the finest in the world, and thus the contingency of a warranty replacement for breakage is remote. Under accounting standards, the proper treatment for a remote likelihood of occurrence is to take no action. Accordingly, in my professional judgment, no journal entry should be made for warranty expense.”

You should review the previous clerk’s notes and evaluate his decision. After refreshing your memory on the treatment of contingent liabilities, what action will you take?

a. Journalize an adjusting entry debiting Product Warranty Expense and crediting Product Warranty Payable. Assume that a reasonable estimate of the warranty cost can be determined by an examination of prior breakage and replacement data.

b. Make no entry, but disclose the possible warranty liability amount in the notes to the company financial statements.

c. Make no entry; the previous clerk is correct that there is a remote chance of any breakage.

d. Since there’s no way to accurately determine the amount of breakage that might occur, no entry or disclosure is required.

You’ve just started your first accounting job, as the accounts payable and payroll clerk for Copperfield and Company, a provider of delicate wine glasses to restaurants. Your predecessor left his job suddenly, and was not able to complete all his tasks before leaving. You need to get up to speed and complete the unfinished tasks as soon as possible. Your tasks on your first day are the following: 1. Review the payroll register to determine if there are any errors or omissions. 2. Calculate the relevant amounts for the company’s note payable and determine whether your predecessor’s journal entries are correct. 3. Make a recommendation as to whether the company should journalize any warranty expense for the month. You decide to get started - the sooner the better! CHART OF ACCOUNTS
Copperfield and Company
General Ledger
ASSETS 110 Cash 111 Accounts Receivable 112 Interest Receivable 113 Notes Receivable 115 Merchandise Inventory 116 Supplies 118 Prepaid Insurance 120 Land 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 213 Interest Payable 214 Notes Payable 215 Wages Payable 216 Social Security Tax Payable 217 Medicare Tax Payable 218 Employees Federal Income Tax Payable 224 Federal Unemployment Tax Payable 225 State Unemployment Tax Payable 228 Product Warranty Payable EQUITY 310 D. Copperfield, Capital 311 D. Copperfield, Drawing 312 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 520 Wages Expense 524 Depreciation Expense-Building 525 Delivery Expense 526 Repairs Expense 529 Selling Expenses 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Supplies Expense 535 Payroll Tax Expense 538 Cash Short and Over 539 Product Warranty Expense 540 Miscellaneous Expense 710 Interest Expense

Solution

Traddles, Thomas has worked for 47 hours of which 40 hours is the normal working hour and 7 hours is overtime. normal hours are paid at $18 per hour and overtime is paid at 1.5 times of normal hour which is $ 27. Correct Calculation is as under:

2024.275

Note Payable:

Interest is Calculated at 5% on $190000 for 90 days and not for full year.

Interest =190000*5%90/360=$2375

Correct Journal Entry is as below

Warranty:

If Probability of Occurrence is Remote than No action is to be taken.

if Probability of Occurrence is Reasonably Possible than Disclosure is required in notes to Financial Statements

If Probability of Occurrence is Probable and We can reasonably estimate the amount of Liability than we shall Accrue the Expense by passing below Journal Entry

Warranty Expense DR

To, Product Warranty Payable

		Earnings	Deductions Withheld	Paid	Account Debited
	Total				Social	Medicare	Federal				Wages
Employee Name	Hours	Regular	Overtime	Total	Security Tax	Tax	Income Tax	Total	Net Pay	Check No.	Expense
Dartle, Rosa	40	720	0	720	43.2	10.8	52.25	106.25	613.75	2355	613.75
Traddles, Thomas	47	720	189	909	54.54	13.635	63.75	131.925	777.075	2557	777.075
Wickfield, Agnes	40	720	0	720	43.2	10.8	32.55	86.55	633.45	2892	633.45
Total		2160	189	2349	140.94	35.235	148.55	324.725	2024.275		2024.275