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Exam 11: Current Liabilities and Payroll

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Question 1

Multiple Choice

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Use the following key (a-d) to identify the proper treatment of each contingent liability. -Event is reasonably possible and amount is estimable

A) Record only
B) Record and disclose
C) Disclose only
D) Do not record or disclose

E) A) and B)
F) C) and D)

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C

Question 2

Multiple Choice

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

A) social security tax
B) unemployment tax
C) marital status
D) number of exemptions claimed

E) C) and D)
F) B) and C)

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Question 3

True/False

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For a current liability to exist, the liability must be due usually within a year and must be paid out of current assets.

The accounting for defined benefit plans is usually very easy and straightforward.

When a borrower receives the face amount of a discounted note less the discount, the amount is known as the

Match each of the following items with the term or phrase (a-g) that best describes it. Terms or phrases may be used more than once. -Current assets - Current liabilities

Quick assets include

The journal entry used to record the payment of a discounted note is

Hadley Industries warrants its products for one year. The estimated product warranty expense is 4% of sales. Assume that sales were $210,000 for June. In July, a customer received warranty repairs requiring $205 of parts and $75 of labor. (a)Journalize the adjusting entry required at June 30, the end of the first month of the current year, to record the estimated product warranty expense. (b)Journalize the entry to record the warranty work provided in July.

In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit.

Several months ago, Jones Company experienced a spill of hazardous materials into the White River from one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $405,000. The company contested the fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally, a homeowner has sued the company for $260,000. Although the homeowner lives 30 miles downstream from the plant, he believes that the spill has reduced his home's resale value by $260,000.Jones' legal counsel believes the following will happen in relationship to these incidents: (a)It is probable that the EPA fine will stand. (b)An out-of-court settlement for $165,000 has recently been reached with the employee, with the final papers to be signed next week. (c)Counsel believes that the homeowner's case is weak and will be decided in favor of Jones Company. (d)Other litigation related to the spill is possible, but the damage amounts are uncertain.​ (1)Based on this information, journalize the contingent liabilities associated with the spill. Use the account "Damage Awards and Fines" to recognize the expense for the period. (2)Prepare any note disclosure related to the spill.​

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

Use the following information and calculate the quick ratio for Davis Company and for Bender Inc.​ (a)Calculate the quick ratio for each company. (b)Comment on which one is more able to meet current liabilities.​​

On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that the fiscal year of Jones ends on July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones in the current fiscal year?

A business issued a 120-day, 6% note for $10,000 to a creditor on account. The company uses a 360-day year for interest calculations. Journalize the entries to record (a) the issuance of the note and (b) the payment of the note at maturity, including interest. $\begin{array}{l}\text { Journal }\\\begin{array} { | c | c | c | c | } \hline & \text { Description } & \text { Debit } & \text { Credit } \\\hline \text { (a) } & & & \\\hline & & & \\\hline & & & \\\hline \text { (b) } & & & \\\hline & & & \\\hline & & & \\\hline\end{array}\end{array}$

Davis and Thompson have earnings of $850 each. The social security tax rate is 6.0%, 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?

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:The total amount withheld from employee wages for federal income taxes was $32,000. $\begin{array} { l l } \text { Social security } & 6.0 \% \\\text { Medicare } & 1.5 \\\text { State unemployment } & 5.3 \\\text { Federal unemployment } & 0.8\end{array}$ 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.?

The current portion of long-term debt should

Notes payable may be issued to creditors to satisfy previously created accounts payable.

Interest expense is reported in the Operating expense section of the income statement.