Exam 11: Current Liabilities and Payroll

The proceeds of a discounted note are equal to the face value of the note.

The use of a separate payroll bank account is not an advantageous control, because it creates more complexity in reconciliation functions for a company and invites theft.

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

Which of the following is an example of a variable component of a payroll system?

For Company A and Company B:​

On June 1, Davis Inc. issued an $84,000, 5%, 120-day note payable to Garcia Company. Assume that the fiscal year of Garcia ends June 30. Using the 360-day year, what is the amount of interest revenue (rounded) recognized by Garcia in the following year?

An employee receives an hourly wage 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, 46; federal income tax withheld, $110; cumulative earnings for the year prior to this week, $24,500; social security tax rate, 6.0%; Medicare tax rate, 1.5%; state unemployment compensation tax, 3.4% on the first $7,000; and federal unemployment compensation tax, 0.8% on the first $7,000. What is the net amount to be paid to the employee?

The payroll summary for December 31 for Waters Co. revealed total earnings of $80,000. Earnings subject to 6.0% social security tax were $60,000; earnings subject to 1.5% Medicare tax were $80,000; and earnings of $3,000 were subject to 4.3% state and 0.8% federal unemployment compensation tax. Journalize the entry to record the accrual of payroll taxes.

Estimating and recording product warranty expense in the period of the sale best follows the

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

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. -Remote contingent liability

During its first year of operations, a company granted its employees vacation privileges and pension rights estimated at a cost of $21,500 and $15,000, respectively. The vacations are expected to be taken in the next year, and the pension rights are expected to be paid in the future 5-30 years. What is the total cost of vacation pay and pension rights to be recognized in the first year?

During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken during the second year. The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.

Excel Products Inc. pays its employees semimonthly. The summary of the payroll for December 31, indicated the following:? Salaries expense \ 120,000 Federal income tax withheld 20,000 For the year ended December 31, $40,000 of the December 31 payroll is subject to social security tax of 6.0%; $120,000 is subject to Medicare tax of 1.5%; $10,000 is subject to state unemployment tax of 4.3% and federal unemployment tax of 0.8%. As of January 1, of the following year, all of the $120,000 is subject to all payroll taxes.Prepare the journal entries for payroll tax expense if the employees are paid (a) December 31 of the current year or (b) January 2 of the following year.

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. -Probable likelihood and estimable liability

The discount on a note payable is charged to an account that has a normal credit balance.

Amounts withheld from each employee for social security and Medicare vary by state.

List five internal controls that relate directly to payroll.

Aqua Construction installs swimming pools. It calculates that warranty obligations are 5% of sales. For the year just ending, Aqua's sales were $1,500,000. Previous quarterly entries debiting Warranty Expense totaled $48,700. Determine the estimated warranty expense for the year and make the journal entry necessary to bring the account to the needed balance.

Several months ago, Maximilien Company experienced a spill of radioactive materials into the Missouri River from one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $1,750,000. The company contested the fine. In addition, an employee is seeking $975,000 damages related to the spill. Finally, a homeowner has sued the company for $580,000. Although the homeowner lives 15 miles downstream from the plant, he believes that the spill has reduced his home's resale value by $580,000.Maximilien's 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 $650,000 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 Maximilien Company. (d)Other litigation related to the spill is possible, but the damage amounts are uncertain. (1)Based on this information, prepare the journal entries for 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.​​