ACC 206 Week 3 Quiz – Strayer
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CHAPTER11
CURRENTLIABILITIESANDPAYROLLACCOUNTING
CHAPTERSTUDYOBJECTIVES
1.Explainacurrentliability,andidentifythemajortypesofcurrentliabilities.
2.Describetheaccountingfornotespayable.
3.Explaintheaccountingforothercurrentliabilities.
4.Explainthefinancialstatementpresentationandanalysisofcurrentliabilities.
5.Describetheaccountinganddisclosurerequirementsforcontingentliabilities.
6.Computeandrecordthepayrollforapayperiod.
7.Describeandrecordemployerpayrolltaxes.
8.Discusstheobjectivesofinternalcontrolforpayroll.
9.Identifyadditionalfringebenefitsassociatedwithemployeecompensation.
TRUE-FALSESTATEMENTS
1. A currentliability
must bepaidoutof currentearnings.
2. Currentliabilitiesareexpectedtobepaidwithinoneyearortheoperatingcycle, whichever islonger.
3. Therelationshipbetweencurrentliabilitiesandcurrentassetsisimportantinevaluatinga company'sabilityto payoffits long-termdebt.
4. Acompanywhosecurrentliabilitiesexceeditscurrentassetsmayhavealiquidity
problem.
5. Notespayableusuallyrequiretheborrowerto
payinterest.
6. Notespayableare oftenusedinsteadofaccountspayable.
7. A notepayablemustalwaysbepaidbeforeanaccountpayable.
8. A $30,000,8%,9-monthnotepayablerequiresaninterestpayment of$1,800 atmaturity.
9. Mostnotesarenotinterest bearing.
10. Withaninterest-bearingnote,theamountofcashreceiveduponissuanceofthenote
generallyexceedsthenote'sfacevalue.
11. Interestexpenseonanote payableis onlyrecordedatmaturity.
12. Interestexpenseis reportedunderOtherExpensesandLossesinthe incomestatement.
13. UnearnedrevenuesshouldbeclassifiedasOtherRevenuesandGainsontheIncome Statement.
14. Thehigherthesalestaxrate,themoreprofitaretailercanearn.
15. MetropolitanSymphonysells200seasonticketsfor$60,000thatincludesafiveconcert season. TheamountofUnearnedTicketRevenueafterthesecondconcertis$24,000.
16. Duringthemonth,acompanysellsgoodsforatotalof$108,000,whichincludessales taxesof$8,000;therefore,thecompanyshouldrecognize$100,000inSalesRevenues and $8,000in SalesTaxExpense.
17. Current
maturitiesoflong-termdebtreferstotheamountofinterestonanotepayable that must be paidinthecurrent
year.
18. Thecurrentratiopermitsanalyststocomparethe
liquidityofdifferent
sizedcompanies.
19. Workingcapital is currentassetsdivided bycurrentliabilities.
20. Contingentliabilitiesshouldberecordedintheaccountsifthereisaremotepossibility that thecontingencywillactuallyoccur.
21. A contingentliabilityisa liabilitythatmayoccur ifsomefutureeventtakesplace.
22. Inconcept,theestimatingofWarrantyExpensewhenproductsaresoldunderwarrantyis
similar to theestimatingofBadDebtsExpensebasedon creditsales.
23. FICAtaxesandfederalincometaxesare leviedonemployees'earningswithoutlimit.
24. FICAtaxeswithheldandfederalincometaxes withheldaremandatorypayrolldeductions.
25. Theemployerincursapayrolltaxexpenseequaltotheamountwithheldfromthe
employees'wagesforfederalincometaxes.
26. Internalcontroloverpayrollisnotnecessarybecauseemployeeswillcomplainiftheydo not receivethecorrectamount ontheirpayrollchecks.
27. Thetimekeepingfunctionincludessupervisorsmonitoringhoursworkedthroughtime
cardsandtimereports.
28. Thehumanresourcesdepartmentdocumentsandauthorizesemploymentofnew employees.
29. Payrollactivitiesinvolvethreefunctions:hiringemployees,preparingthepayroll,and payingthepayroll.
a30. Post-retirementbenefitsconsistofpaymentsbyemployerstoretiredemployees forhealth care, life insurance,andpensions.
Additional
True-FalseQuestions
31. A debt that
isexpectedto
be paidwithinone yearthroughthecreationof
long-termdebt
is a current liability.
32. Notespayableusuallyareissuedtomeet long-termfinancingneeds.
33. Currentmaturitiesoflong-termdebtareoftenidentifiedaslong-termdebtduewithinone yearon thebalancesheet.
34. Inagivenyear,totalwarrantyexpenseisthesumofactualwarrantycostsincurredon unitssoldplustheestimatedcostofservicingthose unitsinthefuture.
35. FICAtaxesarea voluntarydeductionfromemployeeearnings.
36. FICAtaxesareadeductionfromemployeeearningsandarealsoimposedupon employersas an expense.
37. Theobjectivesofinternalaccountingcontrolforpayrollsare(a)tosafeguardcompany
assetsfromunauthorizedpaymentsofpayrollsand(b)toassureaccuracyandreliability
oftheaccountingrecordspertainingto payroll.
a38. Whenacompanygivesemployeesrightstoreceivecompensationforabsencesandthe paymentforsuchabsencesisprobableandtheamountcanbereasonablyestimated, the
companyshould accruea liability.
MULTIPLECHOICEQUESTIONS
39. Allof
thefollowingarereportedascurrent
liabilitiesexcept
a.accountspayable.
b.bonds payable.
c.notespayable.
d.unearnedrevenues.
40. Therelationshipbetweencurrentliabilitiesandcurrentassets is a.usefulindetermining income.
b.usefulinevaluatinga company'sliquidity.
c.calledthematchingprinciple.
d.usefulindeterminingtheamountof
acompany'slong-termdebt.
41. Mostcompaniespaycurrent liabilities
a.outof currentassets.
b.by issuinginterest-bearing
notespayable. c.byissuingstock.
d.bycreatinglong-term liabilities.
42. A currentliability isadebt
thatcanreasonably beexpectedtobepaid a.withinoneyear.
b.between6monthsand 18months.
c.outof currentlyrecognizedrevenues. d.outof cashcurrentlyonhand.
43. Liabilitiesare
classifiedon thebalancesheetascurrentor
a.deferred.
b.unearned. c.long-term. d.accrued.
44. Froma liquiditystandpoint,itismoredesirablefora
companytohavecurrent a.assetsequalcurrentliabilities.
b.liabilitiesexceedcurrentassets.
c.assetsexceedcurrentliabilities.
d.liabilitiesexceed
long-termliabilities.
45. Therelationshipof
current assetstocurrentliabilitiesisusedinevaluatinga company's a.operatingcycle.
b.revenue-producingability.
c.short-termdebtpayingability.
d.long-rangesolvency.
46. Whichofthefollowingisusuallynotan
accruedliability? a.Interestpayable
b.Wagespayable c.Taxespayable d.Notespayable
47. Inmostcompanies,current
liabilitiesarepaidwithin
a.oneyearthroughthecreationof
othercurrentliabilities.
b.theoperatingcyclethroughthecreationof othercurrentliabilities. c.oneyearout of
currentassets.
d.theoperatingcycle out of currentassets.
48. Theentrytorecord theissuance
ofaninterest-bearingnotecreditsNotesPayable forthe
note's
a.maturityvalue. b.marketvalue.
c.facevalue.
d.cashrealizablevalue.
49. Withaninterest-bearingnote,theamountofassets receiveduponissuanceofthenoteis generally
a.equaltothenote'sface value.
b.greaterthanthe
note'sface value.
c.lessthanthenote'sfacevalue.
d.equaltothenote'smaturityvalue.
11-8
50. A notepayableis intheformof
a.a contingencythat isreasonablylikelyto
occur.
b.awrittenpromissorynote.
c.anoralagreement.
d.a standingagreement.
51. Theentrytorecordthe proceedsuponissuinganinterest-bearingnoteis
a.InterestExpense
Cash
NotesPayable b.Cash
NotesPayable c.NotesPayable
Cash d.Cash
NotesPayable InterestPayable
Usethefollowing
informationforquestions52–54.
CoffeyCounty Bank agrees
tolend Adcock BrickCompany$200,000on January1.Adcock Brick Companysignsa$200,000,8%,9-monthnote.
52. TheentrymadebyAdcockBrickCompanyonJanuary1torecordtheproceedsand issuance
ofthenote is
a.InterestExpense.................................................................. 12,000 Cash....................................................................................
188,000
NotesPayable............................................................ 200,000
b.Cash.................................................................................... 200,000
NotesPayable............................................................ 200,000
c.Cash....................................................................................
200,000
InterestExpense.................................................................. 12,000
NotesPayable............................................................ 212,000
d.Cash.................................................................................... 200,000
InterestExpense.................................................................. 12,000
NotesPayable............................................................ 200,000
InterestPayable.......................................................... 12,000
53. WhatistheadjustingentryrequiredifAdcockBrickCompanypreparesfinancial statements onJune30?
a.InterestExpense.................................................................. 8,000
InterestPayable.......................................................... 8,000
b.InterestExpense.................................................................. 8,000
Cash........................................................................... 8,000 c.InterestPayable................................................................... 8,000
Cash........................................................................... 8,000
d.InterestPayable................................................................... 8,000
InterestExpense......................................................... 8,000
CurrentLiabilitiesandPayroll
Accounting 11-9
54. WhatentrywillAdcockBrickCompanymaketopayoffthenoteandinterestatmaturity
assumingthat interesthas
beenaccruedtoSeptember30?
a.NotesPayable...................................................................... 212,000 Cash............................................................................ 212,000
b.NotesPayable...................................................................... 200,000 InterestPayable................................................................... 12,000
Cash............................................................................ 212,000
c.InterestExpense.................................................................. 12,000
NotesPayable...................................................................... 200,000 Cash............................................................................ 212,000
d.InterestPayable................................................................... 8,000 NotesPayable...................................................................... 200,000
InterestExpense.................................................................. 4,000
Cash............................................................................ 212,000
55. As interestisrecordedon an
interest-bearingnote,
theInterestExpenseaccountis a.increased;the NotesPayableaccountis increased.
b.increased;the
NotesPayableaccountisdecreased.c.
increased;theInterestPayableaccountisincreased.d.
decreased;theInterestPayableaccountis increased.
56. Whenaninterest-bearing notematures,thebalance intheNotes Payableaccountis a.lessthanthetotalamountrepaidbythe borrower.
b.thedifferencebetweenthematurityvalueof thenoteandthefacevalueof thenote. c.equal to thetotalamountrepaidbytheborrower.
d.greaterthanthetotalamountrepaidbytheborrower.
Usethefollowing
informationforquestions57–58.
OnOctober1,Jerry'sCarpetServiceborrows$250,000fromFirstNationalBankona3-month, $250,000,8%
note.
57. WhatentrymustJerry'sCarpetServicemakeonDecember31beforefinancial
statements are prepared?
a.InterestPayable................................................................... 5,000
InterestExpense.......................................................... 5,000
b.InterestExpense.................................................................. 20,000
InterestPayable........................................................... 20,000
c.InterestExpense.................................................................. 5,000
InterestPayable........................................................... 5,000
d.InterestExpense.................................................................. 5,000
NotesPayable............................................................. 5,000
58. Theentry by Jerry's Carpet Serviceto recordpaymentof thenoteandaccrued
intereston January1 is
a.NotesPayable...................................................................... Cash............................................................................
b.NotesPayable......................................................................
InterestPayable...................................................................
Cash............................................................................
255,000
250,000 5,000
255,000
255,000
11-10
58. (cont.)
c.NotesPayable..................................................................... InterestPayable................................................................... Cash...........................................................................
d.NotesPayable..................................................................... InterestExpense..................................................................
Cash...........................................................................
250,000 20,000
250,000 5,000
270,000
255,000
59. Interestexpenseonaninterest-bearingnoteis
a.alwaysequaltozero.
b.accruedoverthelifeof thenote.
c.onlyrecordedatthetimethenoteisissued.
d.onlyrecordedatmaturitywhenthenoteispaid.
60. Theentrytorecordthepaymentofaninterest-bearingnoteatmaturityafterallinterest
expense
has beenrecognizedis
a.NotesPayable InterestPayable
Cash
b.NotesPayable Interest
Expense Cash
c.NotesPayable
Cash
d.NotesPayable Cash
InterestPayable
61. Salestaxescollectedbya
retailerarerecordedby
a.creditingSalesTaxesRevenue.
b.debitingSalesTaxesExpense. c.creditingSales TaxesPayable.
d.debitingSalesTaxesPayable.
62. UnearnedRentalRevenueis
a.a contraaccounttoRentalRevenue.
b.a revenueaccount.
c.reportedasacurrentliability.
d.debitedwhenrentis receivedinadvance.
63. Salestaxescollectedbytheretailerare
recordedasa(n)
a.revenue.
b.liability.c.expense.
d.asset.
Usethefollowing
informationforquestions64–65.
OnSeptember1,Ken'sPaintingServiceborrows$50,000fromNationalBankona4-month, $50,000,6%note.
CurrentLiabilitiesandPayroll
Accounting 11-11
64. WhatentrymustKen'sPaintingServicemakeonDecember31before statements are
prepared?
a.InterestPayable................................................................... 1,000 InterestExpense..........................................................
b.InterestExpense.................................................................. 3,000
InterestPayable...........................................................
c.InterestExpense.................................................................. 1,000 InterestPayable...........................................................
d.InterestExpense.................................................................. 1,000 NotesPayable.............................................................
financial
1,000
3,000
1,000
1,000
65. The entrybyKen'sPainting
Serviceto recordpayment
of
thenoteandaccrued
intereston January1 is
a.NotesPayable...................................................................... 51,000
Cash............................................................................ 51,000
b.NotesPayable...................................................................... 50,000 InterestPayable................................................................... 1,000
Cash............................................................................ 51,000 c.NotesPayable......................................................................
50,000
InterestPayable................................................................... 3,000
Cash............................................................................ 53,000
d.NotesPayable...................................................................... 50,000 InterestExpense.................................................................. 1,000
Cash............................................................................ 51,000
66. Theinterestchargedona$100,000notepayable,attherateof8%,ona90-daynote
would
be
a.$8,000. b.$4,444. c.$2,000. d.$667.
67. Theinterestchargedona$100,000notepayable,attherateof6%,ona60-daynote
would
be
a.$6,000. b.$3,333. c.$1,500. d.$1,000.
68. Theinterestchargedona$50,000notepayable,attherateof8%,ona3-monthnote would be
a.$4,000.
b.$2,000. c.$1,000. d.$667.
69. Theinterestchargedona$50,000notepayable,attherateof6%,ona2-monthnote would be
a.$3,000. b.$1,500. c.$750.d.$500.
11-12
70. Acompanyreceives$132,ofwhich$12isforsalestax.Thejournalentrytorecordthe
sale wouldincludea
a.debittoSales TaxExpensefor$12. b.credit toSales TaxPayable for$12. c.debit to Salesfor
$132.
d.debitto Cashfor $120.
71. Acompanyreceives$174,ofwhich$14isforsalestax.Thejournalentrytorecordthe sale
wouldincludea
adebittoSalesTaxExpensefor$14. b.debittoSalesTaxPayablefor$14.
c.debit to Salesfor $174.
d.debitto Cashfor
$174.
72. A retailstore creditedtheSalesaccountforthesales
priceandtheamount ofsalestaxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $315,000,whatisthe
amount of thesalestaxesowedto
thetaxingagency?
a.$300,000 b.$315,000
c.$15,750 d.$15,000
73. OnJanuary1,2008,DunnonCompany,acalendar-yearcompany,issued$600,000of notespayable, ofwhich$150,000 isdueonJanuary 1foreachofthenextfouryears. The properbalancesheetpresentation
on December31,2008,is
a.CurrentLiabilities,$600,000. b.Long-termDebt,$600,000.
c.CurrentLiabilities,$300,000;Long-termDebt,$300,000.
d.CurrentLiabilities,$150,000;Long-termDebt,$450,000.
74. OnJanuary1,2008,BrunsonCompany,acalendar-yearcompany,issued$400,000of notespayable, ofwhich$100,000 isdueonJanuary1foreachofthenextfouryears. The properbalancesheetpresentation
on December31,2008,is
a.CurrentLiabilities,$400,000.
b.Long-termDebt, $400,000.
c.CurrentLiabilities,$100,000;Long-termDebt,$300,000.
d.CurrentLiabilities,$300,000;Long-termDebt,$100,000.
75. Acashregistertapeshowscashsalesof$1,500andsalestaxesof$120.Thejournal
entry torecordthis information is
a.Cash.................................................................................... 1,620
Sales........................................................................... 1,620
b.Cash.................................................................................... 1,620
SalesTaxPayable...................................................... 120
Sales........................................................................... 1,500
c.Cash.................................................................................... 1,500
SalesTaxExpense.............................................................. 120
Sales........................................................................... 1,620
d.Cash.................................................................................... 1,620
Sales........................................................................... 1,500 SalesTaxesRevenue................................................. 120
CurrentLiabilitiesandPayroll
Accounting 11-13
76. Jo’sBookstorehascollected$750insalestaxesduringApril.Ifsalestaxesmustbe
remittedtothestategovernmentmonthly,whatentrywillJo'sBookstoremaketoshow theAprilremittance?
a.SalesTaxesPayable............................................................ 750 Cash............................................................................ 750
b.SalesTaxExpense............................................................. 750
Cash............................................................................ 750
c.SalesTaxExpense.............................................................. 750
SalesTaxesPayable................................................... 750
d.Noentryrequired.
77. JordonCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforOctoberamountedto$18,900.Ifthesalestaxrateis5%,whatamountmust be remittedtothestateforOctober'ssalestaxes?
a.$900 b.$945 c.$45
d.Itcannotbedetermined.
78. Enrique'sSalonhastotalreceiptsforthemonthof$16,430includingsalestaxes.Ifthe
sales taxrateis 6%,whatareEnrique'ssalesfor themonth?
a.$15,444.20 b.$17,415.80
c.$15,500.00
d.Itcannotbedetermined.
79. Theamountof
salestaxcollectedbyaretailstore whenmakingsalesis
a.amiscellaneousrevenuefor
thestore.
b.a currentliability.
c.notrecordedbecauseit
isataxpaidbythecustomer. d.recordedasanoperatingexpense.
80. Aretailstorecredited theSalesaccount
forthesalesprice andtheamountofsales taxon
sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $189,000,whatisthe
amount of thesalestaxesowedto
thetaxingagency?
a.$180,000 b.$189,000
c.$9,450d.$9,000
81. Advancesfromcustomersareclassifiedasa(n)
a.revenue.
b.expense.
c.currentasset.d.currentliability.
82. Thecurrentportionof long-term debtshould a.bepaidimmediately.
b.be reclassifiedasa currentliability. c.beclassifiedasa long-termliability.
d.notbeseparatedfromthelong-termportionof debt.
11-14
83. Salestaxescollectedbya retailerareexpenses a.of
theretailer.
b.of thecustomers.c.ofthegovernment.
d.that arenotrecognizedbythe retaileruntiltheyaresubmittedtothegovernment.
84. Salestaxescollectedbya retailerarereportedas
a.contingentliabilities.
b.revenues. c.expenses.
d.currentliabilities.
85. Linda'sBoutiquehastotalreceiptsforthemonthof$29,295includingsalestaxes.Ifthe
sales taxrateis 5%,whatareLinda'ssalesforthemonth?
a.$27,831
b.$27,900 c.$29,295
d.Itcannotbedetermined.
86. A cashregistertapeshowscashsalesof$1,500and salestaxesof $90.Thejournalentry to recordthisinformationis
a.Cash.................................................................................... 1,500 Sales........................................................................... 1,500
b.Cash.................................................................................... 1,590
SalesTaxRevenue..................................................... 90
Sales........................................................................... 1,500
c.Cash.................................................................................... 1,500 SalesTaxExpense.............................................................. 90
Sales........................................................................... 1,590
d.Cash.................................................................................... 1,590 Sales........................................................................... 1,500 SalesTaxesPayable.................................................. 90
87. Tim'sPharmacyhascollected$600insalestaxesduringMarch.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillTim'sPharmacymaketoshow
theMarch remittance?
a.SalesTaxExpense.............................................................. 600
Cash........................................................................... 600 b.SalesTaxesPayable........................................................... 600
Cash........................................................................... 600 c.SalesTaxExpense.............................................................. 600
SalesTaxesPayable.................................................. 600
d.Noentryrequired.
88. LangerCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforFebruaryamountedto$28,600.Ifthesalestaxrateis4%,whatamountmust
be remittedtothestatefor
February'ssalestaxes?
a.$1,144 b.$1,100 c.$1,716
d.Itcannotbedetermined.
CurrentLiabilitiesandPayroll
Accounting 11-15
89. Anybalanceinanunearnedrevenueaccountisreportedasa(n) a.currentliability.
b.long-termdebt.
c.revenue.
d.unearnedliability.
90. StanleyCompany
typicallysellssubscriptionsonanannualbasis,andpublishessixtimes ayear.Themagazinesells60,000subscriptionsinJanuaryat$15each.Whatentryis made inJanuary torecordthesaleof
thesubscriptions?
a.SubscriptionsReceivable..................................................... SubscriptionRevenue.................................................
b.Cash.....................................................................................
UnearnedSubscriptionRevenue.................................
c.SubscriptionsReceivable.....................................................
UnearnedSubscriptionRevenue.................................
d.PrepaidSubscriptions..........................................................
Cash............................................................................
900,000
900,000
150,000
900,000
900,000
900,000
150,000
900,000
91. Milton
Companyissuedafour-year interest-bearingnotepayablefor$300,000on
January 1,2007.EachJanuarythecompany isrequiredtopay$75,000onthenote.Howwillthis
note be reportedontheDecember31,2008balancesheet?
a.Long-termdebt,$300,000.
b.Long-termdebt,$225,000.
c.Long-termdebt,$150,000;Long-termdebtduewithinone year,$75,000. d.Long-termdebt,$225,000;Long-termdebtduewithinone year,$75,000.
92. JanisKnothasalargeconsultingpractice.Newclientsarerequiredtopayone-halfofthe
consultingfeesupfront.Thebalanceispaidattheconclusionoftheconsultation.How does Knotaccountforthe
cashreceivedattheend of
theengagement?
a.Cash
UnearnedConsultingRevenue
b.Cash
EarnedConsultingRevenue c.PrepaidConsultingFees
EarnedConsultingRevenue
d.Noentryisrequiredwhentheengagementisconcluded.
93. Whichoneofthefollowingisshownfirstundercurrentliabilitiesbymanycompaniesasa matter
ofcustom?
a.Accruedexpenses
b.Currentmaturities
of long-term debt c.Salestaxespayable
d.Notespayableandaccountspayable
94. Workingcapital
is
a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.
c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.
11-16
95. Thecurrentratiois
a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.
c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.
96. Acontingentliabilityneedonlybedisclosedinthefinancialstatementnoteswhenthe likelihood of
thecontingencyis
a.reasonablypossible. b.probable.
c.remote. d.unlikely.
97. Ifacontingentliabilityisreasonablyestimableanditisreasonablypossiblethatthe contingencywilloccur,thecontingentliability
a.shouldberecorded intheaccounts.
b.shouldbedisclosedin the notesaccompanyingthefinancialstatements.
c.shouldnotberecordedordisclosedinthenotesuntilthecontingencyactually happens.
d.mustbepaidforthe amountestimated.
98. Theaccountingforwarrantycostisbasedonthematchingprinciple,whichrequiresthat theestimatedcost of honoring warrantycontractsshouldberecognizedasanexpense
a.whenthe productisbrought inforrepairs.b.intheperiodinwhichtheproductwassold. c.attheendofthewarrantyperiod.
d.onlyif therepairsareexpectedtobemadewithinone year.
99. Ifa
liabilityis
dependentonafutureevent,it iscalleda a.potentialliability.
b.hypotheticalliability.
c.probabilisticliability. d.contingentliability.
100. Currentmaturities
of long-termdebt
a.requireanadjustingentry.
b.areoptionallyreportedonthebalancesheet.
c.canbeproperlyclassifiedduringbalancesheetpreparation,withnoadjustingentry required.
d.arenotconsideredtobecurrentliabilities.
101. A
contingencythatisremote
a.shouldbedisclosedinthefinancialstatements. b.mustbeaccruedasa loss.
c.doesnotneedto
bedisclosed.
d.isrecordedasacontingentliability.
102. Theaccountingfor
warrantycostsisbasedonthe a.goingconcernprinciple.
b.matchingprinciple.
c.conservatismprinciple. d.objectivityprinciple.
CurrentLiabilitiesandPayroll
Accounting 11-17
103. Warrantyexpensesarereported
ontheincomestatementas
a.administrativeexpenses.
b.part of costofgoodssold.
c.contra-revenues.
d.sellingexpenses.
Usethefollowing
informationforquestions104–105.
NeerCompanysells2,000unitsofitsproductfor$500each.Thesellingpriceincludesaone-yearwarrantyonparts.Itisexpectedthat3%oftheunitswillbedefectiveandthatrepaircosts
willaverage$50perunit.Intheyearofsale,warrantycontractsarehonoredon40unitsfora totalcostof$2,000.
104. WhatamountshouldNeerCompanyaccrueonDecember31forestimatedwarranty costs?
a.$3,000
b.$2,000 c.$1,000 d.$15,000
105. WhatamountwillbereportedonNeerCompany'sbalancesheetasEstimatedWarranty Liabilityon December31,2008?
a.$2,000 b.$3,000 c.$1,000
d.Itcannotbedetermined.
106. Whichofthefollowingitemswouldnotbeidentifiedifacontingentliabilityweredisclosed
in a financialstatementfootnote?
a.Thenatureof theitem
b.Theexpectedoutcomeof
thefutureeventc.Anumericalprobabilityof theexpectedloss d.Theamountofthecontingency,if
known
107. Disclosureofa contingentliabilityisusuallymade
a.parenthetically,inthebodyofthebalancesheet.
b.parenthetically,inthebodyoftheincomestatement. c.in anotetothefinancialstatements.
d.inthemanagementdiscussionsectionofthefinancial statement.
108. Currentliabilitiesgenerallyappear
a.after long-termdebtonthebalancesheet.
b.indecreasingorderofmagnitudeonthebalancesheet. c.in orderofmaturityonthebalancesheet.
d.in increasingorderofmagnitudeonthe
balancesheet.
109. Whichofthefollowingemployees wouldlikelyreceivea salaryinsteadofwages?
a.Storeclerk
b.Factoryemployee c.Salesmanager
d.Manuallaborer
11-18
110. Thetotalcompensationearnedbyanemployeeis called
a.take-homepay.
b.netpay.
c.netearnings.d.grossearnings.
111. Whichoneofthefollowingpayrolltaxesdoesnotresultinapayrolltaxexpenseforthe
employer?
a.FICAtax
b.Federalincometax
c.Federalunemployment tax d.Stateunemploymenttax
112. SueStein'sregularrateofpayis$12perhourwithoneandone-halftimesherregular
rateforanyhourswhichexceed40hoursperweek.Sheworked48hourslastweek. Therefore,
hergross wageswere
a.$576. b.$480. c.$624.
d.$864.
113. AssumingaFICAtaxrateof8%onthefirst$90,000inwages,andafederalincometax
rateof20%onallwages,whatwouldbeanemployee'snetpay fortheyearifheearned $100,000for theyear?
a.$92,800
b.$72,000 c.$80,000 d.$72,800
114. Mostcompaniesinvolvedin interstatecommercearerequiredtocomputeovertimeat a.theworker'sregularhourlywage.
b.1.25timestheworker'sregularhourlywage. c.1.5timestheworker'sregularhourlywage. d.2.5timesthe worker'sregularhourlywage.
115. SueRicehasworked44hoursthisweek.Sheworkedinexcessof8hourseachday.Her regularhourlywageis$15perhour.WhatareSue'sgrosswagesfortheweek?(The
company Sue worksfor
is incompliancewiththeFair
LaborStandardsAct.)
a.$660
b.$690 c.$990 d.$720
116. FICAtaxesdonotprovideworkerswith
a.lifeinsurance.
b.supplementalretirement.
c.employmentdisability.d.medicalbenefits.
CurrentLiabilitiesandPayroll
Accounting 11-19
117. Employeepayroll
deductionsincludeeachofthefollowingexcept a.federalunemployment
taxes.
b.federalincometaxes. c.FICAtaxes.
d.insurance,pension plans,anduniondues.
118. ThejournalentrytorecordthepayrollforaperiodwillincludeacredittoWagesand SalariesPayableforthegross
a.amountlessallpayrolldeductions.
b.amountof allpaychecksissued.c.paylesstaxespayable.
d.paylessvoluntarydeductions.
119. Theamountofincometaxeswithheldfromemployeesisdependentoneachofthe followingexceptthe
a.employee'sgrossearnings.
b.employee'snetpay.
c.length ofthepayperiod.
d.numberof allowancesclaimedbytheemployee.
Use thefollowing
informationforquestions120–123.
Thefollowingtotalsforthemonthof
Aprilweretakenfromthepayrollregisterof
MainCompany.
Salaries
FICAtaxeswithheld
IncometaxeswithheldMedicalinsurancedeductions
Federalunemploymenttaxes
Stateunemploymenttaxes
$24,000
1,100 5,000 900
64 432
120. Thejournalentrytorecordthemonthlypayrollon
April30wouldincludea
a.debit toSalariesExpensefor
$24,000.
b.credittoSalariesPayablefor$24,000.
c.debittoSalariesPayablefor$24,000. d.debit
to Salaries Expensefor $17,000.
121. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debit toSalariesPayablefor$16,504.
b.debittoSalariesPayable for$17,000. c.debittoSalariesPayablefor$15,900. d.credit to Cashfor
$18,100.
122. TheentrytorecordaccrualofMainCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$496.
b.debittoPayrollTaxExpensefor$1,596. c.credit toFICA Taxes Payablefor$2,200.
d.credit to PayrollTaxExpensefor $496.
11-20
123. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea
a.credit to FederalUnemploymentTaxes Payablefor
$64.
b.debitto Federal UnemploymentTaxes
Expensefor
$64.
c.creditto PayrollTaxExpensefor$64.
d.debitto Federal UnemploymentTaxes
Payablefor $64
Usethefollowing
informationforquestions124–127.
Thefollowingtotalsforthemonthof
June weretakenfromthepayrollregisterof LaneCompany.
Salaries
FICAtaxeswithheld
IncometaxeswithheldMedicalinsurancedeductions
Federalunemploymenttaxes
Stateunemploymenttaxes
$20,000
1,533 4,400 800
160 1,000
124. Thejournalentrytorecordthemonthlypayrollon
June30wouldincludea a.debit toSalariesExpensefor $20,000.
b.credittoSalariesPayablefor$20,000. c.debittoSalariesPayablefor$20,000.
d.debit to Salaries Expensefor $13,267
125. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debitto SalariesPayablefor$12,107.
b.debittoSalariesPayable for$13,267. c.debittoSalariesPayablefor$12,267. d.credit to Cashfor
$12,267.
126. TheentrytorecordaccrualofLaneCompany’spayrolltaxeswouldincludea
a.debit toPayrollTaxExpensefor$2,693
b.credittoPayrollTaxExpensefor$2,693
c.credit toFICA TaxesPayablefor$1,160. d.credit to PayrollTaxExpensefor $1,160.
127. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea
a.credit to FederalUnemploymentTaxes Payablefor
$160.
b.creditto Federal UnemploymentTaxes
Expensefor
$160. c.creditto PayrollTaxExpensefor$160.
d.debitto Federal UnemploymentTaxes Payablefor
$160.
128. Whichoneofthefollowingpayrolltaxesisnotwithheldfromanemployee'swages because
it is notleviedontheemployee?
a.Federalincometax
b.Federalunemployment
tax c.State incometax
d.FICAtax
CurrentLiabilitiesandPayroll
Accounting 11-21
129. ByJanuary31followingtheendofacalendaryear,anemployerisrequiredtoprovide each employeewitha(n)
a.stateunemploymenttaxform.
b.federalunemployment taxform940. c.wageandtaxstatementformW-2.
d.employee'swithholdingallowancecertificateformW-4.
130. Whichofthefollowingpayroll taxesareusuallyfiledandremittedannually?
a.Federalunemployment taxes
b.FICAtaxes
c.Stateunemploymenttaxes
d.Federalandstateunemploymenttaxes
131. Thetaxthatispaidequallybytheemployerand
employeeis the a.federalincometax.
b.federalunemployment
tax.
c.stateunemploymenttax.d.FICAtax.
132. The effectivefederalunemploymenttaxrateisusually
a.6.2%.
b.0.8%. c.5.4%.
d.8.0%.
133. Thetreasurer'sdepartmentisresponsiblefor a.approvingthepayroll.
b.maintainingpayrollrecords.c.preparingpayroll taxreturns. d.signingpayrollchecks.
134. Thepayrollis paidbythea.personneldepartment.
b.payrolldepartment.
c.cashier.
d.treasurer'sdepartment.
a135.Post-retirementbenefitsconsistof
payments byemployerstoretiredemployeesfor a.healthcareand lifeinsuranceonly.
b.healthcareandpensionsonly.c.lifeinsuranceandpensionsonly.
d.healthcare,lifeinsurance,andpensions.
a136.Thepaidabsencethat
ismostcommonlyaccruedis a.votingleave.
b.vacationtime.c.maternityleave. d.disabilityleave.
11-22
a137.BlakeCompanyhastenemployeeswhoeachearn$160perday.Iftheyaccumulate vacationtimeattherateof1.5vacationdaysforeachmonthworked,theamountof vacation benefitsthatshouldbeaccruedatthe end of
themonthis
a.$160.b.$1,600. c.$2,400. d.$240.
a138.Anemployer'sestimatedcostfor post-retirement benefitsforitsemployeesshouldbe a.recognizedas
anexpensewhenpaid.
b.recognizedasanexpenseduringtheemployees'workyears.
c.recognizedas
an expenseduringtheemployees'retirementyears.
d.chargedto
thegoodwillaccount because providingemployees with benefits
generates employee goodwill.
Additional MultipleChoiceQuestions
139. Acurrentliabilityisadebtthecompanyreasonablyexpectstopayfromexistingcurrent assetswithin
a.oneyear.
b.theoperatingcycle.
c.one yearor theoperatingcycle, whicheverislonger.
d.oneyearor theoperatingcycle, whicheveris
shorter.
140. Whichofthefollowingstatements
concerningcurrent liabilitiesis incorrect? a.Currentliabilitiesincludeunearnedrevenues.
b.Acompanythat hasmore
currentliabilities thancurrentassets is usuallythesubjectof
someconcern.
c.Currentliabilitiesincludeprepaidexpenses.
d.Acurrentliabilityisadebtthatcanreasonablybeexpectedtobepaidoutofexisting
currentassetsorresult inthecreationof
other currentliabilities.
141. OnAugust1,2008,acompanyborrowedcashandsignedaone-yearinterest-bearing noteonwhichboththefacevalueandinterestarepayableonAugust1,2009.Howwill thenotepayableandtherelatedinterestbeclassifiedintheDecember31,2008,balance
sheet?
NotePayable Interest Payablea.Currentliability Noncurrentliability b.Noncurrentliability Currentliability
c.Currentliability Currentliability
d.Noncurrentliability Notshown
142. Companiesreportcurrentliabilitiesonthebalancesheetin
a.alphabeticalorder.
b.order ofmaturity.
c.randomorder.
d.order ofmagnitude.
CurrentLiabilitiesandPayroll
Accounting 11-23
143. A
contingencyneednotberecordednordisclosedwhen
a.itisprobablethecontingencywillhappenandtheamountcanbereasonably
estimated.
b.itisprobablethecontingencywillhappenbuttheamountcannotbereasonably estimated.
c.itisreasonablypossiblethecontingencywillhappenandtheamountcanbe reasonablyestimated.
d.thepossibilityof the contingencyhappeningisremote.
144. A
contingentliabilityis recordedwhenthe
likelihoodof
thecontingency is a.remote.
b.reasonablypossible.
c.probable.
d.nil or zero.
145. MikeKohl,anemployeeofSpottswoodCompany,hasgrossearningsforthemonthof
Octoberof$6,000.FICAtaxesare8%ofgrossearnings, federalincometaxesamount
to $952forthemonth,stateincometaxesare2%ofgrossearnings,andMikeauthorizes voluntarydeductionsof$15permonthtotheUnitedFund.WhatisthenetpayforMike
Kohl?
a.$4,442 b.$4,433 c.$4,448 d.$4,452
146. Apayrollrecordthataccumulatesthegrossearnings,deductions,andnetpayby employeefor
eachpayperiodis the
a.withholdingtaxtable.
b.employeeearningsrecord.
c.payrollregister.
d.WageandTaxStatement.
147. ThejournalentrytorecordthepayrollforMarcusGarveyCompanyfortheweekending
January8,wouldprobablyincludea
a.creditto OfficeSalaries.b.credittoWages Expense.
c.debittoFederalIncomeTaxesPayable. d.creditto FICATaxesPayable.
148. Employerpayroll
taxesincludeallofthefollowingexcept a.FICAtaxes.
b.federalunemployment taxes. c.stateunemploymenttaxes.d.federalincometaxes.
149. Therecordthatprovidesacumulativesummaryofeachemployee’sgrossearnings, payrolldeductions, and
netpayduring theyearandisrequiredtobemaintainedtocomply
with stateandlocalfederallawisthe
a.register.
b.employeeearningsrecord.
c.statementofearnings.
d.wageandtaxstatement.
11-24
a150.Post-retirementbenefitsincludeallofthefollowingexcept a.healthcare.
b.lifeinsurance.
c.pensions.
d.vacationbenefits.
BRIEFEXERCISES
BE151
SaldanaSalesCompanyhasthefollowingselectedaccountsafterpostingadjustingentries:
AccountsPayableNotesPayable,3-month
AccumulatedDepreciation—Equipment
NotesPayable,5-year,6%
PayrollTax Expense InterestPayable MortgagePayable
SalesTaxPayable
$62,000
50,000 14,000 80,000 4,000 3,000 120,000 38,000
Instructions
PreparethecurrentliabilitysectionofSaldanaSalesCompany'sbalancesheet,assuming $20,000of themortgageispayablenextyear.
BE152
Identifywhichof thefollowingwouldbeclassifiedas currentliabilitiesasof December31,2008:
1.WagesPayable
2.BondsPayable, maturingin 2013
3.InterestPayable,dueJuly1,2009 4.TaxesPayable
5.NotesPayable, dueJanuary30,2010
BE153
OnDecember1,DestinCorporationborrowed$5,000ona90-day,6%note.Preparetheentries
torecordtheissuanceofthenote,theaccrualofinterestatyearend,andthepaymentofthe note.
BE154
DuringDecember2008,FashionVixenPublishingsold2,50012-monthannualmagazine subscriptionsatarateof$30each.ThefirstissuesweremailedinFebruary2009.Preparethe entriesonFashionVixen’sbookstorecordthesaleofthesubscriptionsandthemailingofthe
first
issues.
BE155
Landen Companyhadcashsalesof$54,250(includingtaxes)forthemonthofJune.Salesare subjectto8.5%salestax.Preparetheentryto recordthesale.
BE156
OnDecember1, WynnCompanyintroducesanewproductthatincludesaone-yearwarrantyon
parts.InDecember,500unitsaresold.Managementbelievesthat5%oftheunitswillbe defectiveandthattheaveragewarrantycostswillbe$60perunit.Preparetheadjustingentryat December31toaccruethe estimatedwarrantycost.
BE157
MaryStine’sregularhourlywagerateis$12,andshereceivesanhourlyrateof$18forworkin
excessof40hours.DuringaMarchpayperiod,Maryworks47hours.Mary’sfederalincometax
withholdingis$70,andshehasnovoluntarydeductions.ComputeMaryStine’sgrossearnings
and netpayforthepayperiod.
BE158
Data forMaryStinearepresentedinBE157.PreparethejournalentrytorecordMary’spayfor theperiod.Use
March15fortheendof thepayperiod.
BE159
InFebruary,grossearningsinZennCompanytotaled$50,000.Allearningsaresubjectto8% FICAtaxes,5.4%stateunemploymenttaxes,and0.8%federalunemploymenttaxes.Prepare
theentrytorecordJanuarypayrolltaxexpense.
*BE160
WeaverCompanyemployeesareentitledtooneday’svacationforeachmonthworked.In
February,60employeesworkedthefullmonth.RecordthevacationpayliabilityforFebruary
assuming theaveragedailypayfor eachemployeeis$90.
EXERCISES
Ex.161
StinerCompanyhasthefollowingselectedaccounts afterpostingadjustingentries:
AccountsPayableNotesPayable,3-month
AccumulatedDepreciation—Equipment
PayrollandBenefitsPayable
NotesPayable,5-year,8% EstimatedWarrantyLiability PayrollTax ExpenseInterestPayable
MortgagePayable
SalesTaxPayable
$45,000
80,000 14,000 27,000 30,000 34,000 6,000
3,000 200,000 16,000
Instructions
(a)PreparethecurrentliabilitysectionofStinerCompany'sbalancesheet,assuming$25,000 of themortgageispayablenextyear.
(Listliabilities inmagnitudeorder,withlargestfirst.)
(b)Commenton Stiner's liquidity,assumingtotalcurrentassetsare$450,000.
Ex.162
Preparethenecessaryjournalentriesforthefollowingtransactions:
(a)On September1,LoreCompanyborrowed$150,000fromNationalBankona6-month,8% note.
(b)On December31, LoreCompanyaccruedinterest(assumeadjustingentries
areonlymade at theendoftheyear).
CurrentLiabilitiesandPayroll
Accounting 11-29
Ex.163
OnMarch1,FeltonCompanyborrows$90,000fromOttawaStateBankbysigninga6-month, 8%,interest-bearingnote.
Instructions
PreparethenecessaryentriesbelowassociatedwiththenotepayableonthebooksofFelton Company.
(a)Preparetheentryon
March 1whenthe
notewasissued.
(b)PrepareanyadjustingentriesnecessaryonJune30inordertopreparethesemi-annual
financialstatements. Assumenootherinterestaccrualentrieshavebeenmade.
(c)Preparetheadjustingentry
at August31to accrueinterest. (d)Preparetheentryto recordpaymentof
thenote atmaturity.
Ex.164
TomByerssellstelevisionswitha2-yearwarranty.Pastexperienceindicatesthat2%oftheunits soldwillbereturnedduringthewarrantyperiodforrepairs.Theaveragecostofrepairsunder warrantyisestimatedtobe$50perunit.During2008,7,000unitsweresoldatanaverageprice of$400.Duringtheyear,repairsweremadeon55unitsatacost of $2,400.
Instructions
Preparejournalentriestorecordtherepairsmadeunderwarrantyandestimatedwarranty expense fortheyear.
Ex.165
SommersCompanybilleditscustomersatotalof$1,575,000forthemonthofNovember.The
totalincludesa 5% statesalestax.
Instructions
(a)Determinetheproperamountof
revenuetoreportforthemonth.
(b)Preparethegeneraljournalentrytorecordtherevenue andrelatedliabilitiesforthemonth.
Ex.166
StevensCompany does notsegregatesales
andsales taxes onitscashregister.Its registertotal
for themonthis$259,700, whichincludesa 6%salestax.
Instructions
Computesalestaxespayable,andmaketheentrytorecordsalesandsalestaxespayable.
Ex.167
SuttonCoatCompany,whichpreparesannualfinancialstatements,ispreparingadjustingentries
on December31. Analysisindicatesthefollowing:
1.Thecompanyisthedefendantinanemployeediscriminationlawsuitinvolving$50,000of damages.Legalcounselbelievesitisunlikelythatthecompanywillhavetopayany damages.
2.December31stisaFriday.TheemployeesofthecompanyhavebeenpaidonMonday,
December27thforthepreviousweekwhichendedonFriday,December24th.Thecompany employs30peoplewhoearn$100perdayand15peoplewhoearn$150perday.All
employees work5-day weeks.
3.Thecompany
isadefendantina$500,000productliability lawsuit.Legal
counsel believesthe companyprobablywill havetopaytheamountrequested.
a4.Employeesareentitledtooneday'svacationforeachmonthworked.Allemployees
describedabove in(2.) workedthemonthof December.
Instructions
Prepareanyadjustingentriesnecessaryattheendof
theyear.
Ex.168
Basedonthefollowinginformation,computethe(1)
currentratioand(2) workingcapital.
Currentassets
Totalassets Currentliabilities Totalliabilities
$240,000 900,000 80,000 500,000
Ex.169
LindaEstessellsexercisemachinesforhomeuse.Themachinescarrya2-yearwarranty.Past
experienceindicatesthat6%oftheunitssoldwillbereturnedduringthewarrantyperiodfor repairs.Theaveragecostofrepairsunderwarrantyis$60forlaborand$90forpartsperunit.
During2008,2,500exercise machines
weresoldatanaverageprice of$800.Duringtheyear,60
of
themachinesthat weresold wererepairedattheaveragepriceper
unit.
Instructions
(a) Preparethejournalentrytorecordtherepairsmadeunderwarranty.
(b) Preparethejournalentrytorecordtheestimatedwarrantyexpense
fortheyear.
Ex.170
GolfWorldPublicationspublishesagolfmagazineforwomen.Themagazinesellsfor$3acopy onthenewsstand.Yearlysubscriptionstothemagazinecost$24peryear(12issues).During December2008,GolfWorldPublicationssells9,000copiesofthegolfmagazineatnewsstands andreceivespaymentfor15,000subscriptionsfor2009.Financialstatementsareprepared monthly.
Instructions
(a)Preparethe December2008journalentriesto record the
newsstandsales
and subscriptions received.
(b)PreparethenecessaryadjustingentryonJanuary31,2009.TheJanuary2009issuehas been mailedto subscribers.
CurrentLiabilitiesandPayroll
Accounting 11-33
Ex.171
PresleyCompanysellsaproduct
thatincludesaone-yearwarrantyonpartsandlabor.During the
year,10,000unitsaresold.Presleyexpectsthat3%oftheunitswillbedefectiveandthatthe
averagewarrantycostwillbe$50perunit.Actualwarrantycostsincurredduringtheyearwere
$14,000.
Instructions
Preparethejournalentriestorecord(a)theestimatedwarrantycostsand(b)
theactualcosts incurred.
Ex.172
DobsonCompanyispreparingadjustingentriesatDecember31.Ananalysisrevealsthe
following:
1.DuringDecember,DobsonCompanysold2,000unitsofaproductthatcarriesa60-day warranty.Thesalesforthisproducttotaled$100,000.Thecompanyexpects4%oftheunits
toneedrepairunderthe warrantyanditestimates thattheaveragerepaircostperunitwillbe
$15.
2.Thecompanyhasbeensuedbyadisgruntledemployee.Legalcounselbelievesthatitis reasonablypossiblethatthecompanywillhaveto
pay$200,000indamages.
3.Thecompanyhasbeennamedasoneofseveraldefendantsina$400,000damagesuit. Legalcounselbelievesit
is unlikelythatthecompanywillhavetopayanydamages.
a4.Employeesearnvacationpayatarateof1daypermonth.DuringDecember,tenemployees qualifyforvacationpay.Theiraveragedailywageis
$90per employee.
Instructions
Prepareadjustingentries,if required,for
eachofthefouritems.
Ex.173
Matchthecodesassignedtothefollowingpayrollfunctionstotheprocedureslistedbelow:
H HiringEmployees T Timekeeping
PRE PreparingthePayroll
PAY Payingthe Payroll
1.Distributionof
checksbythetreasurer 2.Supervisorapproveshoursworked
3.Documentationof
employeehiring
4.Maintenanceofpayrollrecords
5.Verificationof
payrollcalculations
6.Screeningand interviewingofjobapplicants
7.Useofatimeclock
8.Signingprenumberedpayrollchecks
Ex.174
SueWiebe'sregularhourlywageis$14anhour.Shereceivesovertimepayattherateoftime andahalf.TheFICAtaxrateis8%.Sueispaideverytwoweeks.Forthefirstpayperiodin January,Sueworked86hoursofwhich6wereovertimehours.Sue'sfederalincometax withholdingis$300andherstateincometaxwithholding
is$100.Suehasauthorizedthat$50be
withheldfrom hercheckeachpayperiodforsavingsbonds.
Instructions
ComputeSueWiebe'sgrossearningsandnetpayforthepayperiodshowingeachpayroll
deductioninarrivingatnet
pay.
Ex.175
StacyCooper'sregularhourlywagerateis$12,andshereceivesawageof11/2timesher
regularrateforworkinexcessof40hours.DuringaJunepayperiod,Stacyworked46hours. Stacy'sfederalincometaxwithholdingis$58,andheronlyvoluntarydeductionis$25forgroup hospitalization
insurance.
Instructions
ComputeStacy's(a)grossearningsand(b) net
payforthepayperiod.
Ex.176
OatesCompany'spayrollfortheweekendingJanuary15amountedto$95,000forOffice Salariesand$150,000forStoreWages.Noneoftheemployeeshasreachedtheearningslimits
specifiedforfederalorstateemployerpayrolltaxes.Thefollowingdeductionswerewithheldfrom
employees'salaries andwages:
FederalIncomeTax
StateIncomeTax FICATaxes
UnionDues UnitedFund
$50,000
9,000 19,600 2,700 1,800
Federalunemploymenttax(FUTA)rateis6.2%lessacreditequaltotheratepaidforstate
unemployment taxes.Thestateunemploymenttax(SUTA)rateis5.4%.
Instructions
Preparethe journal entrytorecord
theweeklypayroll endingJanuary
15 andalsothe employer’s payroll
taxexpenseonthe payroll.
Ex.177
AnnFinleyhadearned(accumulated)salaryof$86,000throughNovember30.HerDecember salaryamounted to$7,800.JimLanebeganemploymentonDecember1andwillbepaidhisfirst month'ssalaryof$5,000onDecember31.IncometaxwithholdingforDecemberforeach employee isasfollows:
Ann Finley JimLane FederalIncomeTax $2,180 $990 StateIncomeTax 390 180
CurrentLiabilitiesandPayroll
Accounting 11-37
Ex.177 (cont.)
Thefollowingpayrolltaxratesareapplicable:
FICAtaxonfirst $90,000 8%
FUTAtaxonfirst $7,000 6.2%* SUTAtaxonfirst$7,000 5.4%
*Lessacredit equaltothe stateunemploymentcontribution
Instructions
RecordthepayrollforthetwoemployeesatDecember31andrecordtheemployer'sshareof payroll
taxexpenseforthe December31payroll.
Ex.178
AssumethatthepayrollrecordsofGibbsOilCompanyprovidedthefollowinginformationforthe weeklypayrollendedNovember30, 2008.
Year-to-Date Hourly Federal EarningsThrough
Employee HoursWorked PayRate Income Tax Union Dues PreviousWeek
C.White 44 J.Ward 46 K.Hurt 39 M.King 42
$45 $362 10
65 20 118
22 169
$9 $91,000 5
23,200 —
5,700 7 49,500
Ex.178 (cont.)
Additionalinformation:Allemployeesarepaidovertimeattimeandahalfforhoursworkedin excessof40perweek.TheFICAtaxrateis8%forthefirst$90,000ofeachemployee'sannual
earnings.Theemployerpaysunemploymenttaxesof6.2%(5.4%forstateand.8%forfederal) on thefirst $7,000ofeachemployee'sannualearnings.
Instructions
(a) Preparethepayrollregisterforthepayperiod.
(b) Preparegeneraljournalentriestorecordthepayrollandpayrolltaxes.
Ex.179
DianeJenksearnsasalaryof$8,000permonthduringtheyear.FICAtaxesare8%onthefirst
$90,000ofgrossearnings.Federalunemploymentinsurancetaxesare6.2%ofthefirst$7,000; however,acreditisallowedequaltothestateunemploymentinsurancetaxesof5.4%onthe
$7,000.During the year,
$27,300waswithheldfor
federal incometaxesand$5,700was withheld
for state incometaxes.
CurrentLiabilitiesandPayroll
Accounting 11-39
Ex.179 (cont.)
Instructions
(a)PrepareajournalentrysummarizingthepaymentofJenks’total
salaryduringthe year.
(b)PrepareajournalentrysummarizingtheemployerpayrolltaxexpenseonJenks’salaryfor theyear.
(c)Determinethecostof employing
Jenksfor
theyear.
Ex.180
TolanCompanyhadthefollowingpayroll
datafortheyear:
Grossearningsof employees Employeeearnings
notsubjectto
FICAtax
Employeeearnings notsubjecttoFUTAor
SUTAtax
$640,000
140,000 490,000
Assumingthefollowing:
FICAtaxrate
StateUnemploymenttaxrate
Federal Unemploymenttaxrate
8%
5.4%(SUTA) .8%(FUTA)
Instructions
ComputeTolan'spayrolltaxexpensefortheyear.Makeasummaryjournalentrytorecordthe payroll
taxexpense.
Ex.181
InMarch,grossearningsofMilnerCompanytotaled$150,000.AllearningsaresubjecttoFICA
taxes,5.4%stateunemploymenttaxes,and0.8%federalunemployment
taxes.
Instructions
(a)Computetheemployer'spayrolltaxexpense. (b)Preparetheentrytorecordpayrolltaxes.
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