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Exam 9: Reporting and Analyzing Current Liabilities

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Question 1

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An employee earned $47,000 during the year working for an employer.The FICA tax for social security is 6.2% and the FICA tax for Medicare is 1.45%.The employee's share of FICA taxes is:

A) $681.50
B) $2,914.00
C) $3,595.50
D) $7,191.00
E) Zero,since the employee's pay exceeds the FICA limit

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

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Question 2

Multiple Choice

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If Jefferson Company paid a bonus equal to 8% of net income after bonuses and the total bonus distributed was $420,000,how much was net income for the year?

A) $5,250,000
B) $5,670,000
C) $6,250,000
D) $4,320,000
E) $4,875,000

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

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Question 3

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An estimated liability is a known obligation of an uncertain amount that can at least be reasonably estimated.

Times interest earned is calculated by:

If Steve Company paid $350,000 in bonuses,and net income prior to the bonus was $4,200,000,what was the bonus percentage offered to the employees during 2010?

The amount of federal income tax withheld is based on the employee's annual earnings rate plus the number of withholding allowances claimed by the employee.

A short-term note payable is a written promise to pay a specified amount on a definite future date within one year or the operating cycle,whichever is longer.

Match each definition with its term

If a company had net income of $3,003,000,interest expense of $400,000,a tax rate of 40%,and operating income of $5,405,000,what would the times interest earned ratio be for the company?

A single liability can be divided between current and noncurrent liabilities.

The amount of federal income taxes withheld from an employee's paycheck is determined by:

Unearned revenue is initially recognized with a:

Amounts received in advance from customers for future products or services:

Debt guarantees are not disclosed because the guarantor is not the primary debtor.

On November 1,2009,Bob's Skateboards Store signed a $12,000,3-month,5% note payable to cover a past due account payable. a. What amount of interest expense on this note should Bob's Skateboards Store report? b. Prepare Bob's general journal entry to record the issuance of the note payable c. Prepare Bob's general journal entry to record the payment of the note on February 1, 2010.

Describe how to account for and report on contingent liabilities.

Promissory notes are nonnegotiable,which means they cannot be transferred from party to party.

Uncertainties from the development of new competing products are contingent liabilities.

A payroll register usually shows the pay period dates,hours worked,gross pay,deductions and net pay of each employee for every pay period.

When there is little uncertainty surrounding current liabilities,both GAAP and IFRS require companies to record them in a similar manner.