chapter 11 current liabilities and payroll accounting 465...

Chapter 11 Current Liabilities and Payroll Accounting 465

Required I . Compute times interest earned for Milo Company. 2. Compute times interest earned for Warner Company. 3. What happens to each company's net income if sales increase by 40%? 4. What happens to each company's net income if sales increase by 50%? 5. What happens to each company's net income if sales increase by 80%? 6. What happens to each company's net income if sales decrease by 20%? 7. What happens to each company's net income if sales decrease by 30%? 8. What happens to each company's net income if sales decrease by 40%? Analysis Component 9. Comment on the results from parts 3 through 8 in relation to the fixed-cost strategies of the two com-

panies and the ratio values you computed in parts 1 and 2.

Check (4) Milo net income. $375,000 (63% increase) (6) Warner net income. JI 14.000 (50% decrease)

Pardee Co. pays its employees each week. Its employees' gross pay is subject to these taxes.

FICAMedicare . FUTA

Rate Applied To 6.20% First $102,000 1.45 All gross pa/ 0.80 First $7,000 2.15 First $7,000

Problem I I-4A Payroll expenses, withholdings, and taxes P2 P3

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In addition to gross pay, the company must pay one-half of the $22 per employee weekly health insur-ance; each employee pays the remaining one-half. The company also contributes an extra 8% of each employee's gross pay (at no cost to employees) to a pension fund. Required Compute the following for the week ended August 25 (round amounts to the nearest cent): I . Each employee's FICA withholdings for Social Security. 2. Each employee's FICA withholdings for Medicare. 3. Employer's FICA taxes for Social Security. 4. Employer's FICA taxes for Medicare. S. Employer's FUTA taxes. 6. Employer's SUTA taxes. 7. Each employee's net (take-home) pay. 8. Employer's total payroll-related expense for each employee.

Check 13> $286 13 14] $97.37 151 $9 12

(7) Total net pay. $5,488 50

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466 Chapter 11 Current Liabilities and Payroll Accounting

Problem I I-5A Entries for payroll transactions P2 P3

On January 8, the end of the first weekly pay period of the year. Regal Company's payroll register showed that its employees earned $27,760 of office salaries and $70,240 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $13,360 of federal income taxes, $1,350 of medical insurance deductions, and $840 of union dues. No employee earned more than $7,000 in this first period.

Check (11 Cr. Salaries Payable. $74,953.00

(2) Dr. Payroll Taxes Expense. $13,181.00

Required I . Calculate FICA Social Security taxes payable and FICA Medicare taxes payable. Prepare the journal

entry to record Regal Company's January 8 (employee) payroll expenses and liabilities. 2. Prepare the joumal entry to record Regal's (employer) payroll taxes resulting from the January 8 pay-

roll. Regal's merit rating reduces its state unemployment tax rate to 5% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.8%.

Problem II-6A* Entries for payroll transactions P2 P3 P5

Check March 31: Cr. Salaries Payable. $50,160

Franco Company has 20 employees, each of whom earns $3,000 per month and is paid on the last day of each month. All 20 have been employed continuously at this amount since January 1. Franco uses a payroll bank account and special payroll checks to pay its employees. On March 1, the following accounts and balances exist in its general ledger: a. FICASocial Security Taxes Payable, $7,440; FICAMedicare Taxes Payable, $ 1,740. (The balances

of these accounts represent total liabilities for both the employer's and employees' FICA taxes for the February payroll only.)

b. Employees' Federal Income Taxes Payable, $5,250 (liability for February only). c. Federal Unemployment Taxes Payable, $960 (liability for January and February together). d. State Unemployment Taxes Payable, $4,800 (liability for January and February together). During March and April, the company had the following payroll transactions. Mar. 15 Issued check payable to Swift Bank, a federal depository bank authorized to accept employ-

ers' payments of FICA taxes and employee income tax withholdings. The $14,430 check is in payment of the February FICA and employee income taxes.

31 Recorded the March payroll and transferred funds from the regular bank account to the payroll bank account. Issued checks payable to each employee in payment of the March payroll. The payroll register shows the following summary totals for the March pay period. Salar cs and Wages

Office Shop Gross FICA Income Net Salaries Wages Pay Taxes Taxes Pay $24,000 $36,000 $60,000 $3,720

$ 870 $5,250 $50,160

* FICA taxes are Social Security and Medicare, respectively.

March 31: Dr. Payroll Taxes 31 Recorded the employer's payroll taxes resulting from the March payroll. The company has a Expenses. $5,550 merit rating that reduces its state unemployment tax rate to 4.0% of the first $7,000 paid each

employee. The federal rate is 0.8%. April 15: Cr Cash. $14,430 Apr. 15 Issued check to Swift Bank in payment of the March FICA and employee income taxes. (Swift Bank) 15 i s s u e r ] check to the State Tax Commission for the January, February, and March state unem-

ployment taxes. Mailed the check and the first quarter tax return to the Commission. 30 Issued check payable to Swift Bank in payment of the employer's FUTA taxes for the first

quarter of the year. 30 Mailed Form 941 to the IRS. reporting the FICA taxes and the employees' federal income tax

withholdings for the first quarter. Required Prepare journal entries to record the transactions and events for both March and April.


Chapter 11 Current Liabilities and Pa/roll Accounting 467

Nix Co. entered into the following transactions involving short-term liabilities in 2008 and 2009. PROBLEM SET B

2008 Apr. 22 May 23

July 15 7

? Dec. 6 31

2009

Purchased $6,000 of merchandise on credit from Wolf Products, terms are 1/10, n/30. Nix uses the perpetual inventory system. Replaced the April 22 account payable to Wolf Products with a 60-day, $5,400 note bearing 8% annual interest along with paying $600 in cash. Borrowed $8,500 cash from Autumn Bank by signing a 90-day, 8% interest-bearing note with a face value of $8,500. Paid the amount due on the note to Wolf Products at maturity. Paid the amount due on the note to Autumn Bank at maturity. Borrowed $9,600 cash from City Bank by signing a 90-day, 6% interest-bearing note with a face value of $9,600. Recorded an adjusting entry for accrued interest on the note to City Bank. ? Paid the amount due on the note to City Bank at maturity. (February of 2009 has 28 days.)

Required I . Determine the maturity date for each of the three notes described. 2. Determine the interest due at maturity for each of the three notes. (Assume a 360-day year.) 3. Determine the interest expense to be recorded in the adjusting entry at the end of 2008. 4. Determine the interest expense to be recorded in 2009. S. Prepare journal entries for all the preceding transactions and events for years 2008 and 2009.

Problem I I-IB Short-term notes payable transactions and entries PI

Cheek (2) Wolf, $72 (3) $40 (4) $104

On November 10, 2009, Loma Co. began operations by purchasing coffee grinders for resale. Loma uses the perpetual inventory method. The grinders have a 90-day warranty that requires the company to re-place any nonworking grinder. When a grinder is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new grinder is $15 and its retail selling price is $85 in both 2009 and 2010. The manufacturer has advised the company to expect war-ranty costs to equal 8% of dollar sales. The following transactions and events occurred.

Problem 11-IB Warranty expense and liability estimation P4

2009 Nov. 16 Sold 50 grinders for $4,250 cash.

30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 12 Replaced 11 grinders that were returned under the warranty.

18 Sold 160 grinders for $ 13,600 cash. 28 Replaced 22 grinders that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry.

2010 Jan. 7

21 31

Sold 95 grinders for $8,075 cash. Replaced 45 grinders that were returned under the warranty. Recognized warranty expense related to January sales with an adjusting entry.

Required I . Prepare journal entries to record these transactions and adjustments for 2009 and 2010. 2. How much warranty expense is reported for November 2009 and for December 2009? 3. How much warranty expense is reported for January 2010? 4. What is the balance of the Estimated Warranty Liability account as of December 31. 2009? 5. What is the balance of the Estimated Warranty Liability account as of January 31. 2010?

Check (3) $646 (4) $933 Cr. (5) $904 Cr.



Problem II-3B Computing and analyzing times interest earned Al 1

Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes).

Sales $250,000 Variable expenses (75%) 167,500 Income before interest 62300 Interest expense (fixed) 12300 Net income $ 50.000

Sales $250,000 Variable expenses (50%) 125.000 Income before interest 125.000 Interest expense (fixed) 75.000 Net income ... $ 50,000

Check (3) Ellis net income. $100,000 (100% increase)

(6) Seidel net income, $37,SOO (25% decrease)

Required I . Compute times interest earned for Ellis Company. 2. Compute times interest earned for Seidel Company. 3. What happens to each company's net income if sales increase by 40%? 4. What happens to each company's net income if sales increase by 50%? S. What happens to each company's net income if sales increase by 80%? 6. What happens to each company's net income if sales decrease by 20%? 7. What happens to each company's net income if sales decrease by 30%? 8. What happens to each company's net income if sales decrease by 40%? Analysis Component 9. Comment on the results from parts 3 through 8 in relation to the fixed-cost strategies of the two com-

panies and the ratio values you computed in parts 1 and 2.

Problem I I-4B Payroll expenses, withholdings, and taxes P2 P3

Fishing Guides Co. pays its employees each week. Employees' gross pay is subject to these taxes.

FICASocial Security 6.20% First $ 102,000 FICAMedicare 1.45 All gross pay FUTA 0.80 First $7,000 SUTA 1.75 First $7,000

The company is preparing its payroll calculations for the week ended September 30. Payroll records show the following information for the company's four employees.

i n II J. I ' I P j - r : -1 [ i *, E2L '

Gross Pay Current Week Name through 9/23 Gross Pay Income Tax Withholding

"1 Ahmed $99,500 $4,900 $613 1 1 Carlos 31,850 1,280 140 I 1 Jun 6,380 920 110 I % Marie 1,021 400 37 1


Chapter 11 Current Liabilities and Payroll Accounting 469

In addition to gross pay, the company must pay one-half of the $20 per employee weekly health insur-ance; each employee pays the remaining one-half. The company also contributes an extra 8% of each employee's gross pay (at no cost to employees) to a pension fund. Required Compute the following for the week ended September 30 (round amounts to the nearest cent): I . Each employee's FICA withholdings for Social Security. 2. Each employee's FICA withholdings for Medicare. I . Employer's FICA taxes for Social Security. Check (3) $316.20 4. Employer's FICA taxes for Medicare. m * 1 0 8 7 5

r * (5) $8.16 S. Employer's FUTA taxes. 6. Employer's SUTA taxes. 7. Each employee's net (take-home) pay. (7) Total net pay. $6.135.05 8. Employer's total payroll-related expense for each employee. Ravello Company's first weekly pay period of the year ends on January 8. On that date, the column to-tals in Ravello's payroll register indicate its sales employees earned $20,160, its office employees earned $70,840, and its delivery employees earned $3,000. The employees are to have withheld from their wages FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $12,760 of federal income taxes, $1,350 of medical insurance deductions, and $820 of union dues. No employee earned more than $7,000 in the first pay period. Required I . Calculate FICA Social Security taxes payable and FICA Medicare taxes payable. Prepare the jour-

nal entry to record Ravello Company's January 8 (employee) payroll expenses and liabilities. 2. Prepare the journal entry to record Ravello's (employer) payroll taxes resulting from the January 8

payroll. Ravello's merit rating reduces its state unemployment tax rate to 2% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.8%.

Problem I I-SB Entries for payroll transactions P2 P3

(I) Cr. Salaries Payable, $71,879.00

(2) Dr. Payroll Taxes Expense, $9,823.00

JLS Company has 12 employees, each of whom earns $3,000 per month and is paid on the last day of each month. All 12 have been employed continuously at this amount since January I. JLS uses a pay-roll bank account and special payroll checks to pay its employees. On March 1, the following accounts and balances exist in its general ledger: a. FICASocial Security Taxes Payable, $4,464; FICAMedicare Taxes Payable, $1,044. (The balances

of these accounts represent total liabilities for both the employer's and employees' FICA taxes for the February payroll only.)

b. Employees' Federal Income Taxes Payable, $4,050 (liability for February only). c. Federal Unemployment Taxes Payable, $576 (liability for January and February together). d. State Unemployment Taxes Payable, $3,600 (liability for January and February together). During March and April, the company had the following payroll transactions. March 15 Issued check payable to Security Bank, a federal depository bank authorized to accept em-

ployers' payments of FICA taxes and employee income tax withholdings. The $9,558 check is in payment of the February FICA and employee income taxes.

31 Recorded the March payroll and transferred funds from the regular bank account to the pay-roll bank account. Issued checks payable to each employee in payment of the March payroll. The payroll register shows the following summary totals for the March pay period.

ies and Waees Federal Office Shop Gross FICA Income Net

Salaries Wages Pay Taxes Taxes Pay $21,000 $15,000 $36,000 $2,232 $4,050 $29,196

$ 522

Problem 11 -6BA Entries for payroll transactions P2 P3 P5

Mar. 31: Cr. Salaries Payable. $29,196

* FICA taxes arc Social Security and Medicare, respectively.



Check March 31: Dr. Payroll Taxes Expenses. $3,450 April 15: Cr. Cash $9,558 (Security Bank)

31 Recorded the employer's payroll taxes resulting from the March payroll. The company has 1 merit rating that reduces its state unemployment tax rate to 5.0% of the first $7,000 paid each employee. The federal rate is 0.8%.

April 15 Issued check payable to Security Bank in payment of the March FICA and employee income taxes.

15 Issued check to the State Tax Commission for the January, February, and March state un-employment taxes. Mailed the check and the second quarter tax retum to the State Tax Commission.

30 Issued check payable to Security Bank in payment of the employer's FUTA taxes for the tint quarter of the year.

30 Mailed Form 941 to the IRS, reporting the FICA taxes and the employees' federal income tax withholdings for the first quarter.

Required Prepare joumal entries to record the transactions and events for both March and April.

SERIAL PROBLEM (This serial problem began in Chapter I and continues through most of the book. If previous chapter segments were not completed, the serial problem can begin at this point. It is helpful, but not necessary,

, to use the Working Papers that accompany the book) Success Systems

SP I I Review the February 26 and March 25 transactions for Success Systems (SP 5) from Chapter 5. Required

I . Assume that Lyn Addie is an unmarried employee. Her $ 1,000 of wages are subject to no deductions other than FICA Social Security taxes, FICA Medicare taxes, and federal income taxes. Her federal income taxes for this pay period total $159. Compute her net pay for the eight days' work paid on February 26. (Round amounts to the nearest cent.)

2. Record the journal entry to reflect the payroll payment to Lyn Addie as computed in part 1. 3. Record the journal entry to reflect the (employer) payroll tax expenses for the February 26 payroll

payment. Assume Lyn Addie has not met earnings limits for FUTA and SUTAthe FUTA rate is 0.8% and the SUTA rate is 4% for Success Systems. (Round amounts to the nearest cent.)

4. Record the entry(ies) for the merchandise sold on March 25 if a 4% sales tax rate applies.

COMPREHENSIVE CP I I Bug-Off Exterminators provides pest control services and sells extermination products manu-p|^QB|_E|V| factured by other companies. The following six-column table contains the company's unadjusted trial

balance as of December 31, 2009. Bug-Off Exterminators (Review of Chapters l-l I) BUG-OFF EXTERMINATORS

Unadjusted Trial Balance

Cash $ 17,000 Accounts receivable 4,000 Allowance for doubtful accounts Merchandise inventory 11,700 Trucks 32,000 Accum. depreciationTrucks Equipment 45,000 Accum. depreciationEquipment Accounts payable Estimated warranty liability [continued on next page]

828

12.200 5,000 1,400


Chapter 11 Current Liabilities and Pa/roll Accounting 471

[continued from previous page] Unearned services revenue 0 Interest pa/able 0 Long-term notes parable 15,000 D. Buggs, Capital 59,700 D. Buggs, Withdrawals 10,000 Extermination services revenue 60,000 Interest revenue 872 Sales (of merchandise) 71,026 Cost of goods sold 46,300 Depreciation expenseTrucks 0 Depreciation expenseEquipment 0 Wages expense 35,000 Interest expense 0 Rent expense 9,000 Bad debts expense 0 Miscellaneous expense 1,226 Repairs expense 8,000 Utilities expense 6,800 Warranty expense 0 Totals $226,026 $226,026 The following information in a through h applies to the company at the end of the current year.

a. The bank reconciliation as of December 31, 2009, includes the following facts.

Cash balance per bank $15,100 Cash balance per books 17,000 Outstanding checks 1,800 Deposit in transit 2,450 Interest earned (on bank account) 52 Bank service charges (miscellaneous expense) 15

Reported on the bank statement is a canceled check that the company failed to record. (Information from the bank reconciliation allows you to determine the amount of this check, which is a payment on an account payable.)

b. An examination of customers' accounts shows that accounts totaling $679 should be written off as uncollectible. Using an aging of receivables, the company determines that the ending balance of the Allowance for Doubtful Accounts should be $700.

C. A truck is purchased and placed in service on January 1, 2009. Its cost is being depreciated with the straight-line method using the following facts and estimates.

Original cost $32,000 Expected salvage value 8,000 Useful life (years) 4

d. Two items of equipment (a sprayer and an injector) were purchased and put into service in early January 2007. They are being depreciated with the straight-line method using these facts and estimates.

Sprayer Injector $18,000

Expected salvage value 3.000 2,500 Useful life (years) 5


472 Chapter 11 Current Liabilities and Pa/roll Accounting

Check (la) Cash bal. $15,750 (16) $551 credit

(If) Estim. warranty liability, $2,844 Cr.

(2) Adjusted trial balance totals, $238,207

(4) Net income. $9,274; Total assets. $82.771

e. On August 1. 2009. the company is paid $3,840 cash in advance to provide monthly service for | apartment complex for one year. The company began providing the services in August When I cash was received, the full amount was credited to the Extermination Services Revenue account

f. The company offers a warranty for the services it sells. The expected cost of providing warranty i vice is 2.5% of the extermination services revenue of $57,760 for 2009. No warranty expense I been recorded for 2009. All costs of servicing warranties in 2009 were properly debited to I Estimated Warranty Liability account.

g. The $15,000 long-term note is an 8%, five-year, interest-bearing note with interest payable annu on December 31. The note was signed with First National Bank on December 31. 2009.

h. The ending inventory of merchandise is counted and determined to have a cost of $11.700. Bug-4 uses a perpetual inventory system.

Required I . Use the preceding information to determine amounts for the following items.

Correct (reconciled) ending balance of Cash, and the amount of the omitted check. Adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts. Depreciation expense for the truck used during year 2009. Depreciation expense for the two items of equipment used during year 2009. The adjusted 2009 ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts. The adjusted 2009 ending balances of the accounts for Warranty Expense and Estimated Warranty Liability. The adjusted 2009 ending balances of the accounts for Interest Expense and Interest Payable. (Round amounts to nearest whole dollar.)

2. Use the results of part 1 to complete the six-column table by first entering the appropriate adjust-ments for items a through g and then completing the adjusted trial balance columns. (Hint: Item b requires two adjustments.)

3. Prepare joumal entries to record the adjustments entered on the six-column table. Assume Bug-OfT adjusted balance for Merchandise Inventory matches the year-end physical count.

4. Prepare a single-step income statement, a statement of owner's equity (cash withdrawals during 2009 were $10,000), and a classified balance sheet.

a. b. c. d. e.

BEYOND THE NUMBERS

REPORTING IN ACTION Al P4 ^

BTN I I -1 Refer to the financial statements of Best Buy in Appendix A to answer the I . Compute times interest earned for the fiscal years ended 2007, 2006, and 2005. Comment

Buy's ability to cover its interest expense for this period. Assume an industry average of 28.1. 2. Best Buy's current liabilities include "Unredeemed gift card liabilities." Explain how this liability I

created and how Best Buy satisfies this Uability. 3. Does Best Buy have any commitments or contingencies? Briefly explain them. Fast Forward 4. Access Best Buy's financial statements for fiscal years ending after March 3, 2007,

fBestBuv.com) or the SEC's EDGAR database Iwww.SEC.govV Compute its times for years ending after March 3, 2007, and compare your results to those in part 1.

COMPARATIVE ANALYSIS

M

RadioShack.

BTN I I -2 Key figures for Best Buy, Circuit City, and RadioShack follow.

B est Buy Ci rcuit City R-id oShac One Two One Two o-- T

Current Year Years Current Year Yo a rs Currrnt Year Y. if'. ($ millions) Year Prior Prior Year Prior Prior Year r Prior Net income $1,377 $1,140 $984 m $140 $62 $73 $267 $337 Income raxes 752 581 509 31 86 36 38 52 205 Interest expense . . . . 31 30 44 2 3 4 44 45


http://fBestBuv.comhttp://www.SEC.govV

Chapter 11 Current Liabilities and Payroll Accounting

Raauirect I. Compute times interest earned for the three years' data shown for each company. Sj, Comment on which company appears stronger in its ability to pay interest obligations if income jfe- should decline. Assume an industry average of 28.1.

473

11-3 Connor Bly is a sales manager for an automobile dealership. He earns a bonus each year ETHICS 1 on revenue from the number of autos sold in the year less related warranty expenses. Actual war- CHALLENGE i expenses have varied over the prior 10 years from a low of 3% of an automobile's selling price to .

i of 10%. In the past, Bly has tended to estimate warranty expenses on the high end to be conser- M e. He must work with the dealership's accountant at year-end to arrive at the warranty expense

I for cars sold each year. , Does the warranty accrual decision create any ethical dilemma for Bly? , Since warranty expenses vary, what percent do you think Bly should choose for the current year? Justify your response.

C3 i

11-4 Dustin Clemens is the accounting and finance manager for a manufacturer. At year-end, he COMMUNICATING detennine how to account for the company's contingencies. His manager, Madeline Pretti, objects PRACTICE emens's proposal to recognize an expense and a liability for warranty service on units of a new

introduced in the fourth quarter. Pretti comments, "There's no way we can estimate this war-cost. We don't owe anyone anything until a product fails and it is returned. Let's repoit an expense

and when we do any warranty work." quired Prepare a one-page memorandum for Clemens to send to Pretti defending his proposal.

FN 11-5 Access the February 26, 2007, filing of the December 31, 2006, annual 10-K report of TAKING IT TO onald's Corporation (Ticker: MCD). which is available from www.sEc.gov. THE NET

; Identify the current liabilities on McDonald's balance sheet as of December 31, 2006. . What portion (in percent) of McDonald's long-term debt matures within the next 12 months?

! Use the consolidated statement of income for the year ended December 31, 2006, to compute McDonald's times interest earned ratio. Comment on the result. Assume an industry average of 7.9.

Cl Al

C2 PI

1-6 Assume that your team is in business and you must borrow $6,000 cash for short-term TEAMWORK IN JKeds. You have been shopping banks for a loan, and you have the following two options. ACTION j . ' * . Sign a $6,000, 90-day, 10% interest-bearing note dated June 1.

B. Sign a $6,000, 120-day, 8% interest-bearing note dated June 1. ^Required I Discuss these two options and determine the best choice. Ensure that all teammates concur with the L ' decision and understand the rationale. 2. Each member of the team is to prepare one of the following journal entries.

a. Option Aat date of issuance. b. Option Bat date of issuance. C. Option Aat maturity date. d. Option Bat maturity date.

3. In rotation, each member is to explain the entry he or she prepared in part 2 to the team. Ensure that all team members concur with and understand the entries.


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474 Chapter 11 Current Liabilities and Payroll

Assume that the funds are borrowed on December 1 (instead of June 1) and your t a calendar-year reporting period. Each member of the team is to prepare one of the I a. Option Athe year-end adjustment. b. Option Bthe year-end adjustment. e. Option Aat maturity date. d. Option Bat maturity date. In rotation, each member is to explain the entry he or she prepared in part 4 to I all team members concur with and understand die entries.

ENTREPRENEURIAL DECISION Al I ?

BTN I I -7 Review the chapter's opening feature about Jason Osborn and Jason Wright, start-up company, Feed Granola Company. Assume that these young entrepreneurs panding their business to open an outlet in Europe. Assume their current income

FEED GRANOLA COMPANY Income Statement

>r Year Ended December 31, 2009 Sales $1,000,000 Cost of goods sold (30%) 300,000 Gross profit 700,000 Operating expenses (25%) 250,000 Net income $ 450,000

Feed Granola Company currently has no interest-bearing debt. If it expands to open a European tion, it will require a $300,000 loan. Feed Granola Company has found a bank that will loan it the on a 7% note payable. The company believes that, at least for the first few years, sales at its location will be $250,000, and that all expenses (including cost of goods sold) will follow the terns as its current locations. Required I . Prepare an income statement (separately for current operations, European, and total) for Feed (

Company assuming that it borrows the funds and expands to Europe. Annual revenues for < operations are expected to remain at $1,000,000.

2. Compute Feed Granola Company's times interest earned under the expansion assumptions in put 1 3. Assume sales at its European location are $400,000. Prepare an income statement (separately fore

rent operations, European, and total) for the company and compute times interest earned. 4. Assume sales at its European location are $100,000. Prepare an income statement (separately for c

rent operations, European, and total) for the company and compute times interest earned. 5. Comment on your results from parts 1 through 4.

I HITTING THE BTN I I -8 Check your phone book or the Social Security Administration Website iwww.ssA ori to ROAD locate the Social Security office near you. Visit the office to request a personal eamings and I iJimany

form. Fill out the form and mail according to the instructions. You will receive a statement from the 1" Social Security Administration regarding your earnings history and future Social Security benefits yoo

can receive. (Formerly the request could be made online. The online service has been discontinued and is now under review by the Social Security Administration due to security concerns.) It is good to re-quest an earnings and benefit statement every 5 to 10 years to make sure you have received credit for all wages earned and for which you and your employer have paid taxes into the system.

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chapter 11 current liabilities and payroll accounting 465...

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