Youve 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 the job suddenly, and was not able to complete all the 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 Journal entries made by your predecessor.

2. Compute the relevant amounts for the companys short-term note payable and determine whether your predecessors journal entries are correct.

3. Confirm the journal entry for this years payment on an installment note.

4. 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 ACCOUNTSCopperfield and CompanyGeneral Ledger

	ASSETS
110	Cash
112	Accounts Receivable
113	Interest Receivable
114	Notes Receivable
115	Inventory
117	Supplies
118	Prepaid Insurance
120	Land
123	Building
124	Accumulated Depreciation-Building
125	Office Equipment
126	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
211	Salaries Payable
213	Interest Payable
215	Notes Payable
216	Social Security Tax Payable
217	Medicare Tax Payable
218	Employees Federal Income Tax Payable
219	Employees State Income Tax Payable
220	Retirement Contributions Payable
221	Charitable Contributions Payable
222	Medical Insurance Payable
224	Federal Unemployment Tax Payable
225	State Unemployment Tax Payable
228	Product Warranty Payable

	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Goods Sold
520	Sales Salaries Expense
521	Factory Wages Expense
522	Officers Salaries Expense
523	Delivery Expense
524	Depreciation Expense-Building
526	Repairs Expense
529	Selling Expenses
530	Office Salaries Expense
531	Rent Expense
532	Depreciation Expense-Office Equipment
533	Insurance Expense
534	Supplies Expense
535	Payroll Tax Expense
536	Pension Expense
538	Cash Short and Over
539	Product Warranty Expense
540	Miscellaneous Expense
710	Interest Expense

The following Payroll Journal entries for Oct. 15 were made by your predecessor. For FICA tax, assume that the social security rate is 6.0% and the Medicare rate is 1.5%. The state and federal unemployment tax rates are 5.4% and 0.8%, respectively. The company offers 401k plans to employees. Review the journal entries, then answer the questions that follow.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Oct. 15	Sales Salaries Expense		145,500.00
2		Officers Salaries Expense		523,800.00
3		Office Salaries Expense		97,000.00
4		Factory Wages Expense		203,700.00
5		Social Security Tax Payable			58,200.00
6		Medicare Tax Payable			14,550.00
7		Employees Federal Income Tax Payable			174,600.00
8		Medical Insurance Payable			106,700.00
9		Retirement Contributions Payable			145,500.00
10		Salaries Payable			470,450.00
11	15	Payroll Tax Expense		74,207.00
12		Social Security Tax Payable			58,200.00
13		Medicare Tax Payable			14,550.00
14		Federal Unemployment Tax Payable			188.00
15		State Unemployment Tax Payable			1,269.00
16	15	Pension Expense		87,300.00
17		Cash			87,300.00

In order to confirm the previous clerks payroll calculations, you have been asked to supply the following amounts based on your review of the payroll entries. These amounts will be checked against the company records and investigated further if necessary.

1. Determine the payroll amount subject to federal and state unemployment taxes in this payroll.

2. What is the total payroll for Copperfield and Company shown in these journal entries?

3. What is Copperfield and Companys share of FICA taxes in this payroll?

4. How much has Copperfield and Company contributed to employee 401k plans in this payroll?

Copperfield and Company issued a 90-day, 6.00% 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

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jul. 10	Accounts Payable		190,000.00
2		Notes Payable			190,000.00
3		Notes Payable		201,400.00
4		Accounts Payable			190,000.00
5		Interest Expense			11,400.00

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.

Journalize the payment of the note at maturity as it should have been journalized. Dont forget to include the date. Assume a 360-day year.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3

The following journal entry was made by your predecessor to record the annual payment on a 5%, 10-year installment note.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Oct. 1	Interest Expense	710	95,663.00
2		Notes Payable	215	606,899.00
3		Cash	110		702,562.00

Using the information provided, compute the following amounts.

1. What was the carrying amount (book value) of the installment note before the payment on October 1?

2. What portion of next years payment will be interest? (Round the amount to the nearest dollar.)

Copperfield and Company has decided to provide a warranty on its products. The previous clerk left a note with the files on this new warranty on glass breakage, deciding 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 clerks notes and evaluate the decision. After refreshing your memory on the treatment of contingent liabilities, what action will you take?

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.

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

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

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