3) Buchanan Company recently was sued by a competitor for patent infringement. Attorneys have determined that it is probable that Buchanan will lose the case and that a reasonable estimate of damages to be paid by Buchanan is $ 317,310. In light of this case, Buchanan is considering establishing a $ 115,690 self-insurance allowance.
4) Buchanan should record a litigation accrual on the patent case, since the amount is both estimable and probable. This entry will reduce income by $ 317,310 and Buchanan will report a litigation liability of $ 317,310. The $ 115,690 self-insurance allowance has no impact on income or liabilities.
5) |
Green Day Hardware Company’ s payroll for November 2014 is |
summarized below. |
|
|
Amount Subject to Payroll Taxes Unemployment Tax |
Payroll |
Wages Due |
Federal |
State |
|
|
Factory |
$ 212,000 |
$ 43,000 |
$ 43,000 |
|
|
Sales |
36,400 |
5,300 |
5,300 |
Administrative |
41,200 |
Total |
$ 289,600 |
$ 48,300 |
$ 48,300 |
|
|
At this point in the year, some employees have already received wages in excess of those to which payroll taxes apply. Assume that the state unemployment tax is 2.5 %. The FICA rate is 7.65 % on an employee’ s wages to $ 114,600 and 1.45 % in excess of $ 114,600. Of the $ 289,600 wages subject to FICA tax, $ 22,000 of the sales wages is in excess of $ 114,600. Federal unemployment tax rate is 0.8 % after credits. Income tax withheld amounts to $ 16,570 for factory, $ 6,110 for sales, and $ 5,010 for administrative.