Compensation in lieu of time taken off

Assignment Help Accounting Basics

Reference no: EM13983277

Problem 1: VP Enterprise X did not know his staffs accrue the payroll for the last week in December 2014. The following data needs to be considered and accounted for Enterprise X's 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 all necessary entries to accrue the above payroll.

Problem 2: During the current year Enterprise X was involves in 2 lawsuits, Enterprise X 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 grant punitive damages of $1,000,000.

In the second lawsuit Enterprise X sued a vendor for a failure to comply with design specifications which resulted in the faulty containers that caused the injuries listed in the first lawsuit. Enterprise X is suing for $2,500,000 in damages to cover payment for the first lawsuit and damage to the company reputation. The company's attorney is confident that the company will reach success.

a. How should Enterprise X account for the first lawsuit?

B) How should Enterprise X account for the second lawsuit?

Problem 3: January 1, 2014, Enterprise X entered into an agreement to lease a piece of equipment from Gamma Corporate Inc (the lessor). The lease team is 5 years and the interest rate is 8%. The first payment is made on January 1, 2014, The machine has a fair value of $600,000, a useful life of 6 years and no residual value. Enterprise X does not know the interest rate that Gamma Corporate Inc uses. Assume that the entries have not yet been made on the books of Enterprise X.

Required:

Make the original entry (entries) on January 1, 2014.

Problem 4:

Jet Blue sells high-end laser printer for $5,000 each. They also offer the option to lease the printers for 5 years. The printers cost Jet Blue $3,500 to manufacture. On January 1, 2014, Jet Blue leased 10 printers for Enterprise X, and required that the first payment be made at that time. At the end of the lease term, the printers will be returned to Jet Blue. Although the printers will be considered obsolete at the end to the lease, they will still be worth something at that time. Jet blue wants to recover the full sales price, plus 9% interest, over the 5 years' term of the lease.

Assume that, for this lease, Enterprise X incremental borrowing rate is 16%, and it is unaware of Jet Blue's implicit interest rate. Enterprise X assumes the printers will last 5 years.

a. Determine the amount of the lease payments , as determined by Jet Blue.

b. Provide the entries required on Jet Blue's books to record the lease and the first payment.

c. Compute the total income to be recognized by Jet Blue in the first year of the lease.

Reference no: EM13983277

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