Week Four Exercise Assignment Liability 1. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing: · Social Security taxes: 6% on the first $55,000 earned · Medicare taxes: 1.5% on the first $130,000 earned · Federal income taxes withheld from wages: $7,500 · State income taxes: 5% of gross earnings · Insurance withholdings: 1% of gross earnings · State unemployment taxes: 5.4% on the first $7,000 earned · Federal unemployment taxes: 0.8% on the first $7,000 earned The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end. a. Prepare the necessary entry to record Brookhaven’s February payroll. The entry will include deductions for the following: · Social Security taxes · Medicare taxes · Federal income taxes withheld · State income taxes · Insurance withholdings b. Prepare the journal entry to record Brookhaven’s payroll tax expense. The entry will include the following: · Matching Social Security taxes · Matching Medicare taxes · State unemployment taxes · Federal unemployment taxes 2. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following: 12/1 Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity. 2/10 Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit. 12/22 Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30. 12/26 Borrowed $5,000 from First City Bank; signed a note payable due in 60 days. 12/31 Repaired six XY-80s during the month at a total cost of $162. 12/31 Accrued 3 days of salaries at a total cost of $1,400. Instructions a. Prepare journal entries to record the transactions. b. Prepare adjusting entries on October 31 to record accrued interest. c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date. 3. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31: 8/2: Borrowed $75,000 from the Bank of Kingsville by signing a 120-day note. 8/20: Issued a $40,000 note to Harris Motors for the purchase of a $40,000 delivery truck. The note is due in 180 days and carries a 12% interest rate. 9/10: Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed. 9/11: Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and carries a 14% interest rate. 10/10: The note to Pans Enterprises was p.

1. Week Four Exercise Assignment
Liability
1. Payroll accounting. Assume that the following tax rates and
payroll information pertain to Brookhaven Publishing:
· Social Security taxes: 6% on the first $55,000 earned
· Medicare taxes: 1.5% on the first $130,000 earned
· Federal income taxes withheld from wages: $7,500
· State income taxes: 5% of gross earnings
· Insurance withholdings: 1% of gross earnings
· State unemployment taxes: 5.4% on the first $7,000 earned
· Federal unemployment taxes: 0.8% on the first $7,000 earned
The company incurred a salary expense of $50,000 during
February. All employees had earned less than $5,000 by month-
end.
a. Prepare the necessary entry to record Brookhaven’s February
payroll. The entry will include deductions for the following:
· Social Security taxes
· Medicare taxes
· Federal income taxes withheld
· State income taxes
· Insurance withholdings
b. Prepare the journal entry to record Brookhaven’s payroll tax
expense. The entry will include the following:
· Matching Social Security taxes
· Matching Medicare taxes
· State unemployment taxes
· Federal unemployment taxes
2. Current liabilities: entries and disclosure. A review of

2. selected financial activities of Visconti’s during 20XX
disclosed the following:
12/1
Borrowed $20,000 from the First City Bank by signing a 3-
month, 15% note payable. Interest and principal are due at
maturity.
2/10
Established a warranty liability for the XY-80, a new product.
Sales are expected to total 1,000 units during the month. Past
experience with similar products indicates that 2% of the units
will require repair, with warranty costs averaging $27 per unit.
12/22
Purchased $16,000 of merchandise on account from Oregon
Company, terms 2/10, n/30.
12/26
Borrowed $5,000 from First City Bank; signed a note payable
due in 60 days.
12/31
Repaired six XY-80s during the month at a total cost of $162.
12/31
Accrued 3 days of salaries at a total cost of $1,400.
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on October 31 to record accrued
interest.
c. Prepare the Current Liability section of Red Bank’s balance
sheet as of October 31. Assume that the Accounts Payable
account totals $203,600 on this date.
3. Notes payable. Red Bank Enterprises was involved in the
following transactions during the fiscal year ending October 31:
8/2:
Borrowed $75,000 from the Bank of Kingsville by signing a

3. 120-day note.
8/20:
Issued a $40,000 note to Harris Motors for the purchase of a
$40,000 delivery truck. The note is due in 180 days and carries
a 12% interest rate.
9/10:
Purchased merchandise from Pans Enterprises in the amount of
$15,000. Issued a 30-day, 12% note in settlement of the balance
owed.
9/11:
Issued a $60,000 note to Datatex Equipment in settlement of an
overdue account payable of the same amount. The note is due in
30 days and carries a 14% interest rate.
10/10:
The note to Pans Enterprises was paid in full.
10/31: The note to Datatex Equipment was paid in full.
11/30: Paid note to Bank of Kingville
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on October 31 to record accrued
interest.
c. Prepare the Current Liability section of Red Bank’s balance
sheet as of October 31. Assume that the Accounts Payable
account totals $203,600 on this date.
Week Five Exercise Assignment
Financial Ratios
1. Liquidity ratios. Edison, Stagg, and Thornton have the
following financial information at the close of business on July
10:
Edison

4. Stagg
Thornton
Cash
$4,000
$2,500
$1,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800

5. 3,800
3,800
a. Compute the current and quick ratios for each of the three
companies. (Round calculations to two decimal places.) Which
firm is the most liquid? Why?
2. Computation and evaluation of activity ratios. The following
data relate to Alaska Products, Inc:
19X5
19X4
Net credit sales
$832,000
$760,000
Cost of goods sold
440,000
350,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
180,000
140,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
a. Compute the accounts receivable and inventory turnover
ratios for 19X5. Alaska rounds all calculations to two decimal
places.

6. 3. Profitability ratios, trading on the equity. Digital Relay has
both preferred and common stock outstanding. The company
reported the following information for 19X7:
Net sales
$1,500,000
Interest expense
120,000
Income tax expense
80,000
Preferred dividends
25,000
Net income
130,000
Average assets
1,100,000
Average common stockholders' equity
400,000
a. Compute the gross profit margin ratio, the return on equity
and the return on assets, rounding calculations to two decimal
places.
b. Does the firm have positive or negative financial leverage?
Briefly explain.
4. Horizontal analysis. Mary Lynn Corporation has been
operating for several years. Selected data from the 20X1 and
20X2 financial statements follow.
20X2
20X1
Current Assets
$ 76,000

7. $ 80,000
Property, Plant, and Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
143,000
160,000
Stockholders’ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
332,500
350,000
Operating Expenses
93,500
85,000
Prepare a horizontal analysis for 20X1 and 20X2. Briefly
comment on the results of your work.
5. Vertical analysis. Mary Lynn Corporation has been operating
for several years. Selected data from the 20X1 and 20X2
financial statements follow.
20X2
20X1
Current Assets

8. $ 76,000
$ 80,000
Property, Plant, and Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
143,000
160,000
Stockholders’ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
332,500
350,000
Operating Expenses
93,500
85,000
Prepare a vertical analysis for 20X1 and 20X2. Briefly comment
on the results of your work.
6. Ratio computation. The financial statements of the Lone
Pine Company follow.
LONE PINE COMPANY
Comparative Balance Sheets

9. December 31, 20X2 and 20X1 ($000 Omitted)
20X2
20X1
Assets
Current Assets
Cash and Short-Term Investments
$ 400
$ 600
Accounts Receivable (net)
3,000
2,400
Inventories
2,000
2,200
Total Current Assets
$5,400
$5,200
Property, Plant, and Equipment
Land
$1,700
$ 600
Buildings and Equipment (net)
1,500
1,000
Total Property, Plant, and Equipment
$3,200
$1,600
Total Assets
$8,600
$6,800
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable
$1,800
$1,700
Notes Payable

10. 1,100
1,900
Total Current Liabilities
$2,900
$3,600
Long-Term Liabilities
Bonds Payable
4,100
2,100
Total Liabilities
$7,000
$5,700
Stockholders’ Equity
Common Stock
$ 200
$ 200
Retained Earnings
1,400
900
Total Stockholders’ Equity
$1,600
$1,100
Total Liabilities and Stockholders’ Equity
$8,600
$6,800
LONE PINE COMPANY
Statement of Income and Retained Earnings
For the Year Ending December 31,20X2 ($000 Omitted)
Net Sales*
$36,000
Less: Cost of Goods Sold
$20,000
Selling Expense
6,000
Administrative Expense

11. 4,000
Interest Expense
400
Income Tax Expense
2,000
32,400
Net Income
$ 3,600
Retained Earnings, Jan. 1
900
$ 4,500
Cash Dividends Declared and Paid
3,100
Retained Earnings, Dec. 31
$ 1,400
*All sales are on account.
Instructions
Compute the following items for Lone Pine Company for 20X2,
rounding all calculations to two decimal places when necessary:
a. Quick ratio
b. Current ratio
c. Inventory-turnover ratio
d. Accounts-receivable-turnover ratio
e. Return-on-assets ratio
f. Net-profit-margin ratio
g. Return-on-common-stockholders’ equity
h. Debt-to-total assets
i. Number of times that interest is earned
j. Dividend payout rate