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Exam 10: Current Liabilities and Payroll

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Question 41

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Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was

A) 6.25%
B) 10.00%
C) 10.26%
D) 9.75%

E) All of the above
F) B) and C)

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Question 42

Multiple Choice

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Assuming a 360-day year, when a $20,000, 90-day, 5% interest-bearing note payable matures, total payment will be

A) $21,000
B) $1,000
C) $20,250
D) $250

E) All of the above
F) B) and C)

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Question 43

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Wright Company sells merchandise with a one-year warranty. This year, sales consisted of 2,000 units. It is estimated that warranty repairs will average $15 per unit sold, and 30% of the repairs will be made this year and 70% next year. In this year's income statement, Wright should show warranty expense of

The following information is for employee Ella Dodd for the week ended March 15. Total hours worked: 48 Rate: $15 per hour, with double time for all hours in excess of 40 Federal income tax withheld: $200 United Fund deduction: $50 Cumulative earnings prior to current week: $6,400 Tax rates: Social security: 6% on maximum earnings of $120,000. Medicare tax: 1.5% on all earnings. State unemployment: 3.4% on maximum earnings of $7,000; on employer Federal unemployment: 0.8% on maximum earnings of $7,000; on employer a) Determine 1) total earnings, 2) total deductions, and 3) cash paid. b) Determine each of the employer's payroll taxes related to the earnings of Ella Dodd for the week ended March 15.

Match the following terms or phrases in a-g) with the explanations in 1-8. Terms or phrases may be used more than once. -Reasonably possible likelihood of a liability

Which of the following will have no effect on an employee's take-home pay?

Below are two independent sets of transactions for Welcott Company: a) Welcott provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation pay is $78,000. Journalize the adjusting entry required on January 31, the end of the first month of the year, to record the accrued vacation pay. b) Welcott maintains a defined contribution pension plan for its employees. The plan requires quarterly installments to be paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of each quarter. Assuming that the pension cost is $119,600 for the quarter ended December 31, journalize entries to record 1) the accrued pension liability on December 31 and 2) the payment to the funding agent on January 15.

The journal entry a company uses to record fully funded pension rights for its salaried employees at the end of the year is

Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called FICA taxes.

The following totals for the month of February were taken from the payroll register of Arcon Company: $\begin{array}{ll}\text { Salaries expense } & \$ 13,000 \\\text { Social security and Medicare taxes withheld } & 975 \\\text { Income taxes withheld } & 2,600 \\\text { Retirement savings } & 500 \\\text { Salaries subject to federal and state unemployment taxes of } 6.2 \% & 4,000\end{array}$ a) How much is the total payroll expense for Arcon Company for this payroll? b) Assume that the monthly salaries expense remains the same for the entire year and no employees are hired or fired during that time. Based on what you learned in Chapter 11 about payroll taxes, do you expect the total payroll expense to stay the same every month? Explain.

In order to be a recorded contingent liability, the liability must be possible and easily estimated.

Davis and Thompson have earnings of $850 each. The social security tax rate is 6% and the Medicare tax rate is 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period?

An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $120; social security tax rate, 6%; and Medicare tax rate, 1.5%; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation tax, 0.8% on the first $7,000. What is the net amount to be paid to the employee?

Which of the following is required to be withheld from employee's gross pay?

Payroll entries are made with data from the

Payroll taxes are based on the employee's net pay.

Receiving payment prior to delivering goods or services causes a current liability to be incurred.

A defined contribution plan promises employees a fixed annual pension benefit.

Townson Company had gross wages of $200,000 during the week ended December 10. The amount of wages subject to social security tax was $180,000, while the amount of wages subject to federal and state unemployment taxes was $24,000. Tax rates are as follows: $\begin{array}{ll}\text { Social security } & 6.0 \% \\\text { Medicare } & 1.5 \% \\\text { State unemployment } & 5.3 \% \\\text { Federal unemployment } & 0.8 \%\end{array}$ The total amount withheld from employee wages for federal income taxes was $32,000. a) Journalize the entry to record the payroll for the week of December 10. b) Journalize the entry to record the payroll tax expense incurred for the week of December 10.

On October 1, Ramos Co. signed a $90,000, 60-day discounted note at the bank. The discount rate was 6%, and the note was paid on November 30. Assume a 360-day year is used for interest calculations.)a) Journalize the entries for October 1 and November 30. b) Assume that Ramos Co. signed a 6% note. Journalize the entries for October 1 and November 30.