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Exam 9: Accounting for Current Liabilities

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Question 61

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Deacon Company provides you with following information related to payroll transactions for the month of May.Prepare journal entries to record the transactions for May. $\begin{array} { | c | c | c | c | c | } \hline \begin{array} { c } \text { Office } \\\text { Salaries }\end{array} & \text { Sales Salaries } & \begin{array} { c } \text { Social Security } \\\text { Taxes }\end{array} & \text { Medicare Taxes } & \begin{array} { c } \text { Federal Income } \\\text { Taxes }\end{array} \\\hline \$ 38,000 & \$ 26,000 & \$ 3,968 & \$ 928 & \$ 5,600 \\\hline\end{array}$ a.Recorded the May payroll using the payroll register information given above. b.Recorded the employer's payroll taxes resulting from the May payroll.The company had a merit rating that reduces its state unemployment tax rate to 3.5% of the first $7,000 paid each employee.Only $42,000 of the current months salaries are subject to unemployment taxes.The federal rate is 0.6%. c.Issued a check to Reliant Bank in payment of the May FICA and employee taxes. d.Issued a check to the state for the payment of the SUTA taxes for the month of May. e.Issued a check to Reliant Bank in payment of the employer's quarterly FUTA taxes for the first quarter in the amount of $1,020.

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Question 62

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An employee earned $43,300 working for an employer in the current year.The current rate for FICA Social Security is 6.2% payable on earnings up to $118,500 maximum per year and the rate for FICA Medicare 1.45%.The employer's total FICA payroll tax for this employee is:

A) $8,950.50.
B) $5,638.05.
C) $3,312.45.
D) $2,684.60.
E) $0, since the FICA tax is only deducted from an employee's pay.

F) C) and E)
G) A) and B)

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Question 63

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On December 1,Williams Company borrowed $45,000 cash from Second National Bank by signing a 90-day,9% note payable. a.Prepare Williams' journal entry to record the issuance of the note payable. b.Prepare Williams' journal entry to record the accrued interest due at December 31. c.Prepare Williams' journal entry to record the payment of the note on March 1 of the next year.

Match the following items with the appropriate designation (Estimated liability, Contingent liability, or Known liability) . -Income taxes payable

Identify and explain the types of employer payroll taxes.

A company's income before interest expense and income taxes in 2014 and 2015 is $225,000 and $250,000,respectively.Its interest expense was $45,000 for both years.Calculate the company's times interest earned ratio,and comment on its level of risk.

Uncertainties such as natural disasters are:

A ________ is a seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.

Match the following items with the appropriate designation (Estimated liability, Contingent liability, or Known liability) . -Lawsuit against the company

A liability is incurred when income is earned because income tax expense is created by earning income.

All of the following statements regarding liabilities are true except:

Match the following items with the appropriate designation (Estimated liability, Contingent liability, or Known liability) . -Accounts payable

Match each of the following terms with the appropriate definitions. -A written promise to pay a specified amount on a definite future date within one year or the company's operating cycle,whichever is longer.

Recording employee payroll deductions may involve:

On November 1,Alan Company signed a 120-day,8% note payable,with a face value of $9,000. -What is the maturity value of the note on March 1? (Use 360 days a year.)

All expected future payments are liabilities.

A company's income before interest expense and taxes is $250,000 and its interest expense is $100,000.Its times interest earned ratio is 2.5.

A company sells tablet computers for $1,300 each.The price includes a two-year warranty.During the current year,the company sells 400 tablets.On the basis of past experience,the warranty costs are estimated to be $280 per tablet.The actual warranty costs (paid in cash)by the company during the current year were $65,000.Prepare general journal entries to record the (a)estimated warranty expense and (b)warranty repair costs during current year.

Match each of the following terms with the appropriate definitions. -A record for a pay period that shows the pay period dates,regular and overtime hours worked,gross pay,net pay and deductions.

The payroll records of a company provided the following data for the weekly pay period ended December 7: $\begin{array}{lcccccc}&\text { to End of } && \text { Federal }& \text { Medical }\\&\text { Previous}& \text { Gross }& \text {Income }& \text {Insurance }& \text {Union }& \text {United }\\ \text { Employee} &\text {Week} &\text { Pay } &\text { Taxes } &\text { Deduction } &\text {Dues } &\text {Way }\\ \text { Ronald Arthur } & \$ 54,000 & \$ 1,200 & \$ 216 & \$ 125 & \$ 15 & \$ 15 \\\text { John Baines } & 40,500 & 900 & 162 & 125 & 15 & 30 \\\text { Ted Carter } & 45,000 & 1,000 & 180 & 150 & -0- & 20\end{array}$ The FICA social security tax rate is 6.2% and the FICA Medicare tax rate is 1.45% on all of this week's wages paid to each employee.The federal and state unemployment tax rates are 0.8% and 5.4%,respectively,on the first $7,000 paid to each employee.Prepare the journal entries to (a)accrue the payroll and (b)record payroll taxes expense.