A. Payroll Taxes. In January, 19C, the financial statements of the Grabill Company for the year ended December 31, 19B, were examined. The company filed the necessary payroll tax returns for the first three quarters of 19B and had prepared drafts of the returns scheduled to be filed by January 31, 19C.
The following information was available from the general ledger, copies
and drafts of payroll tax returns, and other sources:
Balance as of
Account December 31, 19B Composition of Balance
Wages (various expense accounts). . . $121,800.00 12 monthly entries from the payroll summaries
Payroll Taxes Expense. . .. . . . . . . . .
FICA (6% of $102,000), $6,120;
state unemployment tax (2.7%
of $59,000), $1,593; federal unem-
ployment tax (.5% of $59,000),
$295; amounts withheld from em-
ployees for FICA tax in October
and November and paid to depos-
Employees' Payroll Taxes Withheld….. 3,122.50 December income tax, $1,530; Octo- ber through December FICA tax,
Employer's Payroll Taxes Payable. . … . 956.50 December FICA tax, $462.50; Octo- ber through December state un- employment tax, $199; 19B fed- eral unemployment tax, $295
(a) In August 19B, six laborers were hired to tear down an old warehouse building located on the site where a new warehouse would soon be constructed. The laborers' 19B wages totaling $1,000 were charged to the land and buildings account. Payroll taxes were not withheld.
(b) Included in a 19B wages expense account is one month's salary of $1,400 paid to the president on December 30, 19B, for his 19A vacation allowance.
(c) A gross factory payroll of $1,200 through December 31, 19B, and the related FICA taxes (employer and employee) were accrued on the general ledger at the year end for a portion of the week ending January 4, 19C. Each of the em- ployees included in this payroll earned between $4,000 and $6,000 as a Grabill employee in 19B.
(d) In December, 19B, a contractor was paid $2,300 for making repairs to machinery usually made by company employees and the amount was charged to Wages Expense. No payroll taxes were withheld.
(e) Copies of 19B tax returns:
First Three Quarters
Totals (Duplicate Copies Last Quarter
for Year of Returns) (Pellcil Draft)
Gross wages $121,800
Wages taxable for FICA 102,000
FICA tax. . … . . . . . . . . . . . . . . . . . . . .. . . 12,240
Income tax withheld. . .. . . . . . . . . . . . . .. . . . . 15,740
Wages taxable for state unemployment tax. . .. 59,000
Total state unemployment
tax (employer only).. . . . . . . . . . . . . . . . . . . . 1,593
Total federal unemployment
tax – employer only
(pencil draft of return for full year). . . . . . . 295
Required: (1) A schedule presenting the computation of total taxable wages to be reported on the 19B payroll tax returns for FICA tax and for state un- employment tax.
(2) A schedule presenting the computation of the amounts (to the nearest dollar) which should be paid with each of the year-end payroll tax returns to be filed in January, 19C, for (a) FICA tax and income tax withheld, (b) state un- employment tax, and (c) federal unemployment tax.
(3) A schedule to reconcile the differences between the amounts which should be paid with payroll tax returns to be filed in January, 19C [as computed for (2) above], and the balances shown at December 31, 19B, in the related general ledger liability accounts.
B. Costs of Pension Plans and Financial Statements. Casey and Lewis Printers, Inc. was organized in 1955 and fifteen years later established a formal pension plan to provide retirement benefits for all employees. The plan is noncontrib- utory and is funded through a trustee, the First National Bank, which invests all benefits as they become due. Original past service cost of $110,000 is being amortized over 15 years and funded over 10 years on a present-value basis at
5%. The company also funds an amount equal to current normal cost net of actuarial gains and losses. There have been no amendments to the plan since inception.
The independent actuary's report is shown on page 470.
Required: (1) On the basis of accounting requirements for the cost of pen- sion plans, an evaluation of the (a) treatment of actuarial gains and losses and (b) computation of pension cost for financial-statement purposes. (Ignore income tax considerations.)
(2) A footnote for the company's financial statements for the year ended June 30, 19A, in accordance with Accounting Principles Board Opinion No.8. [Independent of the answer to (1), assume that the total amount to be funded is $32,663; the total pension cost for financial-statement purposes is $29,015; all amounts presented in Parts II, III, and IV of the actuary's report are correct.]
(AI CPA adapted)
CASEY & LEWIS PRINTERS, INC.
Basic Noncontributory Pension Plan
Actuarial Report as of June 30, 19A
I. Current Year's Funding and Pension Cost:
Normal cost (before adjustment for actuarial gains) computed under the entry-age-normal method .
Excess of expected dividend income over actual dividend income .
$ (350) Gain on sale of investments . Gains in actuarial assumptions for:
Mortality . 4,050
Employer turnover. .
Net actuarial gains
14,000 Normal cost (funded currently)… . . . . . Past service costs:
Funding. . . . . . . . . .. . . . . . . . . . . . . . .. .
. $ 14,000
Total funded. . . . . . . . . . . . . . . . . ..
Total pension cost for financial-statement
Investment gains (losses):
Reduction in pension cost from closing
II. Fund Assets:
Cash . Dividends receivable. Investment in common stocks, at cost (market value, $177,800) .
$598,00 0 °
Number of employees
Number of employees retired
Yearly earnings of employees
IV. Actuarial Assumptions:
Interest . Mortality .