Product Warranty Liability To match revenues and expenses properly, warranty costs should be recognized as expense in the same period in which related revenues are recorded. Date Description Debit Cred Dec 31 Product Warranty Expense 3,000 Product Warranty Payable 3.000 Sales of $60, 000 with a 36-month warranty. Estimated average cost to repair defects is 5% Estimated warranty: $60,000 X 5%=$3,000 c10-6
C10 - 6 Date Description Debit Credit Product Warranty Liability Product Warranty Expense 3,000 Product Warranty Payable 3,000 Estimated warranty: $60,000 x 5% = $3,000 Dec. 31 Sales of $60,000 with a 36-month warranty. Estimated average cost to repair defects is 5%. To match revenues and expenses properly, warranty costs should be recognized as expense in the same period in which related revenues are recorded
Payroll and Payroll Taxes Payroll is the amount paid to em ployees for services provided Payrolls are im portant because 1. Good employee relations demand that payrolls be calculated accurately and paid as scheduled 2. Payroll expenditures are subject to a variety of federal, state, and local taxes 3. Total payroll expense(gross payroll plus payroll taxes)has a major im pact on net income c10-7
C10 - 7 1. Good employee relations demand that payrolls be calculated accurately and paid as scheduled. 2. Payroll expenditures are subject to a variety of federal, state, and local taxes. 3. Total payroll expense (gross payroll plus payroll taxes) has a major impact on net income. Payroll and Payroll Taxes Payroll is the amount paid to employees for services provided. Payrolls are important because:
Gross Pay Calculation John T Mc Grath is em ployed by McDermott Supply Co at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended Decem ber 27. Mc Grath worked 44 hours Employee viewpoint Base earnings(40 X $25 $1,000 Overtime earnings(4 X $37.50) 150 Total earnings $1,150 Employer viewpoint Base earnings(44 X$25) $1,100 Overtime premium(4 X $12.50) 50 Total earnings $1,150 c108
C10 - 8 Base earnings (40 x $25) $1,000 Overtime earnings (4 x $37.50) 150 Total earnings $1,150 Base earnings (44 x$25) $1,100 Overtime premium (4 x $12.50) 50 Total earnings $1,150 Gross Pay Calculation John T. McGrath is employed by McDermott Supply Co. at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended December 27, McGrath worked 44 hours. Employee viewpoint: Employer viewpoint:
Gross Pay Calculation John T Mc Grath is em ployed by McDermott Supply Co at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended Decem ber 27. Mc Grath worked 44 hours Employee viewpoint Base earnings(40 x$25) $1,000 Overtime earnings(4 X $37.50) 150 Total earnings $1,150 Same total earnings but a Employer viewpoint Base earnings(44 X$25) $1,100 different view of the Overtime premium(4 X $12.50) 50 overtime Total earnings $1, 150hours c10-9
C10 - 9 Base earnings (40 x$25) $1,000 Overtime earnings (4 x $37.50) 150 Total earnings $1,150 Base earnings (44 x$25) $1,100 Overtime premium (4 x $12.50) 50 Total earnings $1,150 Gross Pay Calculation John T. McGrath is employed by McDermott Supply Co. at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended December 27, McGrath worked 44 hours. Same total earnings but a different view of the overtime hours Employee viewpoint: Employer viewpoint:
FICA Tax Calculation Assume that John T Mc Grath's annual earnings prior to the current period total $69, 150. The current period earnings are $1, 150 FICA tax calculation: Earnings subject to 6.0% social security tax ($70,000-$69,150) $850 Social security tax rate x6% Social security tax $5100 Earnings subject to 1.5%Medicare tax Current earnings $1,150 Medicare tax rate x1.5% Medicare tax 1725 Total fICa tax $6825 c1010
C10 - 10 ($70,000 - $69,150) $850 Social security tax rate x 6% Social security tax $51.00 Current earnings $1,150 Medicare tax rate x 1.5% Medicare tax 17.25 Total FICA tax $68.25 FICA Tax Calculation Assume that John T. McGrath’s annual earnings prior to the current period total $69,150. The current period earnings are $1,150. FICA tax calculation: Earnings subject to 6.0% social security tax Earnings subject to 1.5% Medicare tax