Problem 1 The controller for P & P Products neglected to have her staff accrue the payroll for the last week in December, 2014. The following data should have been considered and accounted for in P & P Products’ books. Total payroll = $1,350,000?Income taxes to be withheld = $150,000?FICA taxes applicable to the payroll accrual = $28,000?FUTA taxes on accrued payroll = $4,000?Union dues that should have been withheld from employees’ payroll = $12,000.?Total compensated absences related to the payroll = $75,000 vacation time and $85,000 sick time.
Employees who do not take vacation will receive compensation in lieu of time taken off. Sick time does not vest and, if the employee does not use their sick time, it is forfeited back to the company.
Required: Journalize any necessary entries to accrue the above payroll.
Problem 4 During the current year, P & P Products was involved in two lawsuits. In the first lawsuit, P & P Products was sued by two employees who claimed that they were injured by potentially defective containers that came apart during loading. The company’s attorney has determined that there is a high probability that the jury will grant punitive damages of $1,000,000. In the second lawsuit, P & P Products sued a vendor for failure to comply with design specifications, which resulted in the faulty containers that caused the injuries listed in the first lawsuit. P & P Products is suing for $2,500,000 in damages to cover payment for the first lawsuit and damage to the company’s reputation. The company’s attorney is confident that the company will be successful.
Required: a. How should P & P account for the first lawsuit?
b. How should P & P account for the second lawsuit?
Problem 1 On January 1, 2014, P & P Products entered into an agreement to lease a piece of equipment from Beta Company, Inc. (the lessor). The lease term is five years and the interest rate is 8 percent. The first payment is made on January 1, 2014. The machine has a fair value of $600,000, a useful life of six years and no residual value. P & P Products does not know the interest rate that Beta uses. Assume that the entries have not yet been made on the books of P & P Products.
Required: Make the original lease entry(ies) on January 1, 2014.
Problem 3 Delta Company sells high-end laser printers for $5,000 each. They also offer the option to lease the printers for five years. The computers cost Delta $3,500 to manufacture. On January 1, 2014, Delta leased 10 computers to P & P, and required that the first payment be made at that time. At the end of the lease term, the printers will be returned to Delta. Although the printers will be considered obsolete at the end of the lease, they will still be worth something at that time. Delta wants to recover the full sales price, plus 9 percent interest, over the five-year term of the lease. Assume that, for this lease, P & P’s incremental borrowing rate is 16 percent, and it is unaware of Delta’s implicit interest rate. P & P assumes the printers will last 5 years.
Required: 1-Determine the amount of the lease payments, as determined by Delta. ? 2-Provide the entries required on Delta’s books to record the lease and the first payment. 3-Compute the total income to be recognized by Delta Company in the first year of the lease.