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Exam 11: Current Liabilities and Payroll Accounting

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Question 1

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Contingent liabilities are recorded in the accounts if the future event is _______________ and the amount owed can be _______________. Answers must appear in this order.

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Question 2

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Carson Company faces a probable loss on a pending lawsuit where the amount of the loss is estimated to be $500,000.The journal entry to recognize the potential loss is:

A) Debit Prepaid Legal Expense $500,000;credit Contingent Legal Liability $500,000.
B) Debit Legal Expense $500,000;credit Lawsuit Payable $500,000.
C) Debit Contingent Legal Expense $500,000,credit Contingent Legal Liability $500,000.
D) Debit Lawsuit Payable $500,000,credit Contingent Legal Liability $500,000.
E) No journal entry is required.

F) C) and D)
G) A) and B)

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Question 3

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A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale.Warranty costs are estimated to be 5% of sales.During the month of July,the company performed warranty work and used $11,000 of parts to perform the warranty work.Sales for July were $450,000. 1.Record the warranty expense for the month of July. 2.Record the costs of the warranty work completed in June. 3.If the Estimated Warranty Liability account had a credit balance of $10,000 on May 31,what is the account balance at June 30?

Santa Barbara Express has 4 sales employees,each of whom earns $5,000 per month and is paid on the last working day of the month.Each employee's wages are subject to FICA social security taxes of 6.2% and Medicare taxes of 1.45% on all wages.Withholding for each employee also includes federal income tax of 16% and monthly medical insurance premiums of $110 for each employee. a.Prepare the general journal entry to accrue the monthly sales salaries expense at January 31. b.The employer payroll taxes for Santa Barbara Express include FICA taxes,federal unemployment taxes of 0.6% of the first $7,000 paid each employee,and state unemployment taxes of 4.0% of the first $7,000 paid to each employee.Prepare the journal entry to record the employer's payroll taxes at January 31 for Santa Barbara Express.(Assume that none of the employees has reached the unemployment limit of $7,000. )

Springfield Company offers a bonus plan to its employees and the amount of the employee bonuses for the current year is estimated to be $32,500 to be paid during January of the following year.The journal entry on December 31 to record the bonuses is:

The Wage and Tax Statement given to each employee annually is:

An employee earns $9,450 for the current period.The cumulative earnings of previous pay periods is $110,000.Social security tax applies to the first $117,000 of employee earnings.Calculate the total and individual amounts to be withheld for social security (6.2%),Medicare (1.45%)and federal income tax (15%).

All of the following statements regarding liabilities are true except:

Cardinal Company sells merchandise for $24,000 cash on March 31 (cost of merchandise is $12,300).The sales tax law requires Cardinal to collect 8.5% sales tax on every dollar of merchandise sold.Record the entry for the sale and its applicable sales tax.

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.

A company estimates that warranty expense will be 4% of sales.The company's sales for the current period are $185,000.The current period's entry to record the warranty expense is:

Obligations not expected to be paid within the longer of one year or the company's operating cycle are reported as:

Athena Company provides employee health insurance that costs $5,000 per month.In addition,the company contributes an amount equal to 5% of the employees' $120,000 gross salary to a retirement program.The entry to record the accrued benefits for the month would include a:

Employer payroll taxes are an added employee _____________ beyond the wages and salaries earned by the employees.

A table that shows the amount of federal income tax to be withheld from an employee's pay is the:

If a company has advance ticket sales totaling $2,000,000 for the upcoming football season,the receipt of cash would be journalized as:

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What amount of interest expense is accrued at December 31 on the note?

An employee earned $4,600 in February working for an employer.The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%.The employee has $644 in federal income taxes withheld and has voluntary deductions for health insurance of $50 and contributes 10% of gross pay to a retirement plan each month.The employer pays the $200 remainder of the health insurance premium and an equal amount of contribution to the retirement fund.What is the amount of net pay for the employee for the month of February?

A company's payroll information for the month of May follows: On May 31 the company issued Check No.4625 payable to the Payroll Bank Account to pay for the May payroll.It issued payroll checks to the employees after depositing the check. (1)Prepare the journal entry to record (accrue)the employer's payroll for May.(2)Prepare the journal entry to record payment of the May payroll.The federal and state unemployment tax rates are 0.6% and 5.4%,respectively,on the first $7,000 paid to each employee.The wages and salaries subject to these taxes were $6,000.(3)Prepare the journal entry to record the employer's payroll taxes.

Hollow Company provides you with following information for two of its employees.The company is subject to the following taxes. Compute amounts for each of these four taxes as applied to each employee's gross earnings for November.