Swish Watch Corporation manufactures, sells, and services expensive, ugly watches. The company has been in business for three years.

Swish Watch Corporation manufactures, sells, and services expensive, ugly watches. The company has been in business for three years. At the end of the most recent year, 2006, the accounting records reported total assets of $2,255,000 and total liabilities of $1,780,000. During the current year, 2007, the following summarized events occurred:

a. Issued additional shares of stock for $109,000 cash.                                  

b. Borrowed $186,000 cash from the bank and signed a 10-year note.

c. A stockholder sold $5,000 of his capital stock in Swish Watch Corporation to another investor.

d. Built an addition on the factory for $200,000 and paid cash to the construction company.

e. Purchased equipment for the new addition for $44,000, paying $12,000 in cash and signing a

six-month note for the balance.

f. Returned a $4,000 piece of equipment, from e, because it proved to be defective; received a

cash refund.

g. At the end of 2006, lent $2,000 cash to the company president, Thor Gunn arson, who signed

a note with terms requiring repayment of the loan in one year.

Required:

1. Complete the spreadsheet that follows, using plus (+) for increases and minus (-) for decreases for each account.

Event	Assets				=	Liabilities	+	Stockholders' Equity
	Cash	Notes Receivable	Equipment	Building	=	Notes Payable		Contributed Capital	Retained Earnings
a)	+ 109,000				=			+109,000
b)					=
c)					=
d)					=
e)					=
f)					=
g)					=
Totals					=

2. Did you include event c in the spreadsheet? Why?

3. Based on beginning balances plus the completed spreadsheet, provide the following amounts

(show computations):

a. Total assets at the end of the year.

b. Total liabilities at the end of the year.

c. Total stockholders’ equity at the end of the year.

d. As of December 31, 2007, has the financing for Swish Watch Corporation’s investment in assets primarily come from liabilities or stockholders’ equity?

                                                    

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Below is a payroll sheet for Otis Import Company for the month of September 2014

P13-4 (Payroll Tax Entries) 

Below is a payroll sheet for Otis Import Company for the month of September 2014. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of $113,700. In addition, 1.45% is charged both employer and employee for an employee's wages in excess of $113,700 per employee.

						Unemployment Tax
Name	Earnings to Aug. 31	September Earnings	Income Tax Withholding1	FICA		State	Federal
B.D. Williams	$  6,800	$   800
D. Raye	6,500	700
K. Baker	7,600	1,100
F. Lopez	13,600	1,900
A. Daniels	107,000	13,000
B. Kingston	112,000	16,000

Instructions

• (a)Complete the payroll sheet and make the necessary entry to record the payment of the payroll.
• (b)Make the entry to record the payroll tax expenses of Otis Import Company.
• (c)Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month.

TUTORIAL PREVIEW

(a)

Name

Earnings to Aug. 31

September Earnings

Income Tax Withholding

FICA

SUTA

FUTA

B. D. Williams

$    6,800

$     800

$     80

$  61.20

$2.00*

$1.60**

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The cost of equipment purchased by Charleston, Inc., on June 1, 2014

(Depreciation for Partial Periods--SL, Act., SYD, and Declining-Balance) 

The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 42,000, and its total production is estimated at 525,000 units. During 2014, the machine was operated 6,000 hours and produced 55,000 units. During 2015, the machine was operated 5,500 hours and produced 48,000 units.

Instructions

Compute depreciation expense on the machine for the year ending December 31, 2014, and the year ending December 31, 2015, using the following methods.

(a)Straight-line.

b)Units-of-output.

(c)Working hours.

(d)Sum-of-the-years'-digits.

(e)Declining-balance (twice the straight-line rate).

TUTORIAL PREVIEW

		Depreciation Expense
		2014	2015
(a)	Straight-line:
	($89,000 – $5,000) ÷ 7 = $12,000/yr.
	2014: $12,000 X 7/12	$7,000

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