Acc551 Final Exam Essay

1089 WordsNov 9, 20145 Pages
1. (TCO C) Redstone Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented. How should these costs be accounted for in the year they are incurred? (Points: 20) The $190,000 should be expensed when incurred as research and development costs. The $91,000 is expensed as selling and promotion costs when incurred. The $45,000 legal fees to obtain a patent should be capitalized and amortized over the useful life or legal life of the patent, whichever is shorter. 2. (TCO D) Total payroll of Watson Co. was $920,000, of which $160,000 represented amounts paid in excess of $100,000 to certain employees. The amount paid to employees in excess of $7,000 was $720,000. Income taxes withheld were $225,000. The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the F.I.C.A. tax is 7.65% on an employee’s wages to $100,000 and 1.45% in excess of $100,000. (a) Prepare the journal entry for the wages and salaries paid. (b) Prepare the entry to record the employer payroll taxes. (a) Wages and Salaries Expense 920,000 Withholding Taxes Payable 225,000 FICA Taxes Payable 60,460 [($920,000 – $160,000) × 7.65%] + ($160,000 × 1.45%) Cash 634,540 (b) Payroll Tax Expense 64,460 FICA Taxes Payable 60,460 ($760,000 × 7.65%) + ($160,000 × 1.45%) Federal Unemployment Tax Payable [($920,000 – $720,000) × .8%] 1,600 State Unemployment Tax Payable 2,400 ($200,000 × 1.2%) 3. (TCO D). Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar.) The December 31,

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