You’ve just started your first accounting job, as the accountspayable and payroll clerk for Copperfield and Company, a providerof delicate wine glasses to restaurants. Your predecessor left hisjob suddenly, and was not able to complete all his tasks beforeleaving. You need to get up to speed and complete the unfinishedtasks as soon as possible. Your tasks on your first day are the following: 1. Review the payroll register to determine if there are anyerrors or omissions. 2. Calculate the relevant amounts for the company’s note payableand determine whether your predecessor’s journal entries arecorrect. 3. Make a recommendation as to whether the company shouldjournalize 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 AccumulatedDepreciation-Building 125 Office Equipment 126 Accumulated Depreciation-OfficeEquipment 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 TaxPayable 224 Federal Unemployment TaxPayable 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-OfficeEquipment 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

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

Note 1: For 2015, the social security tax ratewas 6.2% and the medicare tax rate was 1.45%. However, for textexamples 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 securitytax are limited to an annual threshold amount, but for textexamples and problems, including this one, assume allaccumulated annual earnings are below this threshold and subject tothe tax.

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

		Earnings			Deductions Withheld				Paid		AccountDebited
	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	720.00		720.00	10.80	43.20	52.25	106.25	613.75	2355	613.75
Traddles, Thomas	47	846.00		846.00	12.69	50.76	63.75	127.20	718.80	2557	718.80
Wickfield, Agnes	40	720.00		720.00	10.80	43.20	32.55	86.55	633.45	2892	633.45
Total		2,286.00	$0.00	2,286.00	34.29	137.16	148.55	320.00	1,966.00		1,966.00

		Earnings			Deductions Withheld				Paid		AccountDebited
	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						52.25			2355
Traddles, Thomas	47						63.75			2557
Wickfield, Agnes	40						32.55			2892
Total							148.55

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

PAGE 25

JOURNAL

	DATE	DESCRIPTION	POST.REF.	DEBIT	CREDIT
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 July10 is correct, but the entry for the payment of the note atmaturity (including interest) did not have a date and was notcorrect.

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

PAGE 25

JOURNAL

	DATE	DESCRIPTION	POST.REF.	DEBIT	CREDIT
1
2
3

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

“Our product is the finest in the world, and thus thecontingency of a warranty replacement for breakage is remote. Underaccounting standards, the proper treatment for a remote likelihoodof occurrence is to take no action. Accordingly, in my professionaljudgment, no journal entry should be made for warrantyexpense.”

You should review the previous clerk’s notes andevaluate his decision. After refreshing your memory on thetreatment of contingent liabilities, what action will youtake?

a. Journalize an adjusting entry debitingProduct Warranty Expense and crediting Product Warranty Payable.Assume that a reasonable estimate of the warranty cost can bedetermined by an examination of prior breakage and replacementdata.

b. Make no entry, but disclose the possiblewarranty liability amount in the notes to the company financialstatements.

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

d. Since there’s no way to accurately determinethe amount of breakage that might occur, no entry or disclosure isrequired.