Q&A Hero

Q: Employers must keep individual earnings reports for each employee.

Q: A high merit rating for state unemployment taxes means that an employer has high employee turnover or seasonal hiring.

Q: Employers must pay FICA taxes twice the amount of the FICA taxes withheld from their employees.

Q: The amount of federal income tax withheld from employee pay depends on the employee's annual earnings rate and the number of withholding allowances claimed by the employee.

Q: Required payroll deductions include income taxes, Social Security taxes, pension and health contributions, union dues, and charitable giving.

Q: Even if the end of an accounting period occurs between the signing of a note payable and its maturity date, the matching principle requires that interest expense not be accrued on a note payable until the note is paid.

Q: Promissory notes cannot be transferred from party to party because they are nonnegotiable.

Q: Experience shows that the default rate on liabilities increases sharply when times interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time periods.

Q: The times interest earned ratio is calculated by dividing interest expense by income before interest expense and income taxes.

Q: A potential lawsuit claim is disclosed when the claim can be reasonably estimated and it is reasonably possible.

Q: Debt guarantees are usually disclosed as a contingent liability.

Q: Uncertainties from the development of new competing products are not contingent liabilities.

Q: Payroll is an example of a contingent liability for the employer.

Q: Vacation benefits is an example of a known liability.

Q: Sales taxes payable is debited and cash is credited when companies send sales taxes collected from customers to the government.

Q: Unearned revenues are current liabilities.

Q: A liability may exist even if there is uncertainty about whom to pay, when to pay, or how much to pay.

Q: A company cannot have a liability if the amount of the obligation is unknown.

Q: A single liability cannot be divided between current and noncurrent liabilities.

Q: On January 31, Ransom Company's payroll register showed that its employers earned $30,320 of office salaries and $82,750 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes as the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $16,960 of federal income taxes, $3,350 of medical insurance deductions (which represents 50% of the total cost of the employee medical insurance), and $4,210 of 401(k) retirement contribution deductions. Ransom Company pays the other 50% of the employee insurance cost and matches the employee 401(k) contributions. Several employees earned more than $7,000 for the period which reduced salaries subject to unemployment to $104,000. No employees exceeded the FICA-Social Security taxable wage base.

Q: Star Recreation receives $48,000 cash in advance ticket sales for 12 home games. Record the advance ticket sales on April 30. Record the revenue earned for the first home game played on August 14.

Q: 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.

Q: A company's payroll information for the month of May follows: Administrative salaries $4,000 Sales salaries 5,500 FICA-Social Security taxes withheld 589 FICA-Medicare taxes withheld 138 Federal income taxes withheld 1,300 Medical insurance premiums withheld 415 Union dues withheld 205 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.

Q: Early Co. offers its employees a bonus equal to 2% of the company's net income. The estimated net income for the year is expected to be $800,000. Prepare the general journal entry to record the estimated employee bonus plan expense.

Q: A company sells sofas with a 6-month warranty. In January, the company sold 100,000 sofas at $1,750 each; and 500 sofas needed repairs during that same month. The total repairs amounted to $85,000 costs from the upholstery materials inventory. It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $200 per unit. Prepare the journal entries to record (a) estimated warranty expense for January and (b) warranty repair costs for January.

Q: A company sells tablet computers for $1,300 each. The price includes a two-year warranty. During the current year, the company sells 400 tablets. On the basis of past experience, the warranty costs are estimated to be $280 per tablet. The actual warranty costs (paid in cash) by the company during the current year were $65,000. Prepare general journal entries to record the (a) estimated warranty expense and (b) warranty repair costs during current year.

Q: Estimated Warranty Liability"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6.. 11,000 Parts Inventory"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6... 11,000

Q: Warranty Expense ($450,000 * .05)"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6 22,500 Estimated Warranty Liability"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6. 22,500

Q: 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.)

Q: A company has three employees. Total salaries for the month of January were $8,000. The federal income tax rate for all employees is 15%. The FICAsocial security tax rate is 6.2% and the FICAMedicare tax rate is 1.45%. Calculate the amount of employee taxes withheld and prepare the company's journal entry to record the January payroll assuming these were the only deductions.

Q: 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%).

Q: Calculate the total amount of FICA withholding for an employee whose pay is $2,400 for the first pay period of the year. The tax rate for FICASocial Security is 6.2% and the tax rate for FICAMedicare is 1.45%..

Q: 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.

Q: On September 15, SkateWorld borrowed $70,000 cash from Mutual Bank by signing a 6%, 60-day note payable. a. Prepare SkateWorld's journal entry to record the issuance of the note payable. b. Prepare SkaetWorld's journal entry to record the payment of the note at maturity.

Q: On June 1, Jasper Company signed a $25,000, 120-day, 6% note payable to cover a past due account payable. a. What is the total amount of interest to be paid on this note? b. Prepare Jasper Company's general journal entry to record the issuance of the note payable. c. Prepare Jasper Company's general journal entry to record the payment of the note on September 29.

Q: On November 1, Casey's Snowboards signed a $12,000, 90-day, 5% note payable to cover a past due account payable. a. What amount of interest expense on this note should Casey's Snowboards report on year-end December 31? b. Prepare Casey's journal entry to record the issuance of the note payable. c. Prepare Casey's adjusting journal entry at the end of the year d. Prepare Casey's journal entry to record the payment of the note on February 1 of the following year.

Q: SaveMart had income before interest expense and income taxes of $12,581 million and interest expense of $1,063 million. Valueland had income before interest expense and income taxes of $3,596 million and interest expense of $1,143 million. Calculate the times interest earned for each company and comment on the results.

Q: Kelso had income before interest expense and income taxes of $570 million and interest expense of $37 million. Calculate Kelso" times interest earned.

Q: Floral Depot's income before interest expense and income taxes was $5,900 million, and interest expense was $38 million. Calculate Floral Depot's times interest earned.

Q: Identify and discuss the factors involved in computing federal income taxes withheld from employees.

Q: Explain the responsibilities of and the accounting by employers for deductions from employee payroll.

Q: Explain how to calculate times interest earned and how it is used to analyze a company's risk.

Q: Describe contingent liabilities and how to account for and/or report them.

Q: B; 2. A; 3. C; 4. A; 5. A; 6. C; 7. B; 8. C; 9. C; 10. C Short Answer Questions

Q: Lawsuit against the company 2. Warranty on products sold this year 3. Accounts payable 4. Income taxes payable 5. Vacation benefits 6. Accrued wages payable 7. Debt guarantees 8. Sales taxes payable 9. Payroll taxes payable 10. Unearned revenues

Q: Warranty work completed this year

Q: Payment of a 30-year term loan due next year. (The company's operating cycle is 2 months.)

Q: Payment of a 30-year term loan due this year

Q: Income taxes payable

Q: FICA taxes payable

Q: Debt guarantees

Q: Salaries payable

Q: 60-day promissory note

Q: C; 2. J; 3. E; 4. D; 5. F; 6. G; 7. B; 8. H; 9. I; 10. A

Q: Match each of the following terms with the appropriate definitions. a. Employee benefits f. Gross pay b. Short-term note payable g. Times interest earned c. Payroll bank account h. Warranty d. Federal depository bank i. Deferred income tax liability e. Payroll register j. Current liabilities _____ 1. A record for a pay period that shows the pay period dates, regular and overtime hours worked, gross pay, net pay and deductions. _____ 2. Obligations due within one year or the company's operating cycle, whichever is longer. _____ 3. A special bank account used solely for paying employees; each pay period an amount equal to the total employees' net pay is deposited and the employees' payroll checks are drawn on that account. _____ 4. A seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period. _____ 5. Total compensation earned by an employee. _____ 6. Compensation provided to employees beyond salaries and wages, such as premiums for medical insurance and contributions to pension plans. _____ 7. Payments of income taxes that are deferred until future years because of temporary differences between GAAP and tax accounting rules. _____ 8. A bank authorized to accept deposits of amounts payable to the federal government, including payroll taxes. _____ 9. A calculation of a company's risk of its ability to pay interest when due. _____10. A written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

Q: A company's has fixed interest expense of $52,000, income taxes expense of $121,000, and net income of $281,000. The company's times interest earned ratio equals: A.8.73. B.5.40. C.7.73. D.2.33. E.0.11.

Q: On September 1, Knack Company signed a $50,000, 90-day, 5% note payable with Central Savings Bank. What is the journal entry that should be recorded by Knack upon maturity of the note? A.Debit Interest Expense $625; credit Interest Payable $625. B.Debit Notes Payable $50,000; credit Interest Revenue $625; credit Cash $49,375 C.Debit Cash $50,625; credit Notes Receivable $50,625. D.Debit Notes Payable $50,625; credit Cash $50,625. E.Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.

Q: On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What is the journal entry that should be recorded upon signing the note? A.Debit Accounts Receivable $24,000; credit Notes Receivable $24,000 B.Debit Accounts Payable $24,000; credit Notes Payable $24,000. C.Debit Accounts Payable $24,160; credit Notes Payable $24,160 D.Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160 E.Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160

Q: 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.

Q: A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers. When the company mails the first quarterly journal to customers, it should record: A.Debit Prepaid Subscriptions $33,750; credit Unearned Revenue $33,750. B.Debit Unearned Revenue $45,000; credit Cash $45,000. C.Debit Cash $11,250, credit Sales $11,250. D.Debit Unearned Revenue $11,250, credit Sales $11,250. E.Debit Prepaid Subscriptions $11,250, credit Sales $11,250.

Q: If a company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers, the receipt of cash would be journalized as: A.Debit Cash $45,000; credit Unearned Revenue $45,000. B.Debit Unearned Revenue $45,000; credit Sales $45,000. C.Debit Cash $45,000, credit Sales $45,000. D.Debit Sales $45,000, credit Unearned Revenue $45,000. E.Debit Prepaid Subscriptions $45,000, credit Sales $45,000.

Q: During June, Vixen Fur Company sells $850,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. Customers returned $14,000 of merchandise for warranty replacement during the month. The entry to settle the customer warranties is: A.Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500. B.Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500. C.Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000. D.Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500. E.Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.

Q: During August, Boxer Company sells $356,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $12,800 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs. The entry to record the customer warranty repairs is: A.Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800. B.Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400. C.Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400. D.Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400. E.Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800.

Q: Athena Company's salaried employees earn two weeks of vacation per year. It pays $858,000 in total employee salaries for 52 weeks but its employees work only 50. Record Athena Company's weekly journal entry to record the vacation expense: A.Debit Vacation Benefits Expense $16,500; credit Vacation Benefits Payable $16,500. B.Debit Vacation Benefits Expense $17,160; credit Vacation Benefits Payable $17,160. C.Debit Vacation Benefits Expense $17,875; credit Vacation Benefits Payable $17,875. D.Debit Vacation Benefits Payable $17,160; credit Vacation Benefits Expense $17,160. E.Debit Vacation Benefits Payable $16,500; credit Vacation Benefits Expense $16,500.

Q: 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: A.Debit to Medical Insurance Payable $5,000. B.Debit to Employee Retirement Program Payable $6,000. C.Debit to Employee Benefits Expense $11,000. D.Credit to Employee Benefits Expense $11,000. E.Debit to Payroll Taxes Expense $11,000.

Q: All of the following statements regarding FICA taxes are true except: A.FICA taxes are deducted from the employee. B.Employers must pay withheld FICA taxes to the IRS. C.The amount of FICA deducted from the employee is credited to a liability account. D.A self-employed person is exempt from FICA taxes. E.An employer must pay FICA taxes equal to the amount withheld from the employee.

Q: An employee earned $4,600 in February working for an employer. Cumulative earnings of the previous pay periods are $4,800. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 4.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount the employer should record as payroll taxes expense for the month of February? A.$581.90 B.$110.00 C.$351.90 D.$461.90 E.$230.00

Q: 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.$3,094.10 B.$3,496.00 C.$3,604.10 D.$3,446.00 E.$2,634.10

Q: .On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a 90-day, 8%, $7,500 note. What is the journal entry needed to record the payment of the note by Jarrett Company on the maturity date? A.Debit Notes Payable $7,500; credit Interest Expense $150; credit Cash $7,350. B.Debit Notes Payable $7,500; credit Cash $7,500. C.Debit Notes Payable $7,650; credit Cash $7,650. D.Debit Notes Payable $7,500; debit Interest Expense $150; credit Cash $7,650. E.Debit Cash $7,650; credit Interest Revenue $150; credit Notes Receivable $7,500.

Q: On April 12, Hong Company agrees to accept a 60-day, 10%, $4,500 note from Indigo Company to extend the due date on an overdue account. What is the journal entry needed to record the payment of the note by Indigo Company on the maturity date? A.Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575. B.Debit Notes Payable $4,500; credit Interest Expense $75, credit Cash $4,425. C.Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500. D.Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612. E.Debit Cash $4,575; credit Interest Revenue $75; credit Notes Receivable $4,500.

Q: All of the following statements regarding long-term liabilities are true except? A.Liabilities not expected to be paid within the longer of one year or the company's operating cycle are reported as long-term liabilities. B.Long-term liabilities include long-term notes payable, warranty liabilities, lease liabilities, and bonds payable. C.Liabilities that do not have a fixed due date, but are payable on demand, are reported as long-term liabilities. D.Long-term liabilities can be reported on the balance sheet in a single total or in multiple categories. E.A single long-term liability can be divided between current and noncurrent sections on the balance sheet.

Q: Furniture World is required by law to collect and remit sales taxes to the state. If Furniture World has $78,000 of cash sales that are subject to a 6% sales tax, what is the journal entry to record the cash sales? A.Debit Cash $82,680; credit Sales $78,000; credit Sales Taxes Payable $4,680. B.Debit Sales Taxes Payable $4,680; debit Cash $73,220; credit Sales $78,000. C.Debit Cash $78,000; credit Sales $78,000; and record the taxes when paid. D.Debit Cash $78,000; credit Sales $73,320; credit Sales Taxes Payable $4,680. E.Debit Accounts Receivable $82,680; credit Sales $78,000; credit Sales Taxes Payable $4,680.

Q: Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $8,000 of cash sales that are subject to an 8% sales tax, what is the journal entry to record the cash sales? A.Debit Cash $8,000; credit Sales $7,360; credit Sales Taxes Payable $640. B.Debit Sales Taxes Payable $640; debit Cash $7,360; credit Sales $8,000. C.Debit Cash $8,000; credit Sales $8,000; and record the taxes when paid. D.Debit Cash $8,640; credit Sales $8,000; credit Sales Taxes Payable $640. E.Debit Accounts Receivable $8,640; credit Sales $8,000; credit Sales Taxes Payable $640.

Q: A company sold equipment that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the equipment was $40,000. The company should recognize a: A.$0 gain or loss. B.$20,000 gain. C.$20,000 loss. D.$40,000 loss. E.$60,000 gain.

Q: An asset can be disposed of by all of the following except: A.Discarding it. B.Selling it. C.Exchanging it for another asset. D.Donating it to charity. E.Continuing to use it after it is fully depreciated.

Q: A machine costing $75,000 is purchased on September 1, Year 1. The machine is estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-declining-balance depreciation is used. If the machine is sold on December 31, Year 3 for $13,000, the journal entry to record the sale will include: A.A credit to gain on sale for $8,000. B.A debit to loss on sale for $2,625. C.A credit to accumulated depreciation for $59,375. D.A debit to loss on sale for $3,042. E.A credit to gain on sale for $4,979.

Q: Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years. Straight-line depreciation is used. If the equipment is sold on July 1, Year 5 for $20,000, the journal entry to record the sale will include a: A.Credit to cash for $20,000. B.Debit to accumulated depreciation for $22,500. C.Debit to loss on sale for $10,000. D.Credit to loss on sale for $10,000. E.Debit to gain on sale for $2,500.

Q: Martinez owns machinery that cost $87,000 with accumulated depreciation of $40,000. The company sells the machinery for cash of $42,000. The journal entry to record the sale would include: A.A credit to Accumulated Depreciation of $40,000 B.A credit to Gain on Sale of $2,000. C.A credit to Machinery of $47,000. D.A debit to Cash of $42,000. E.A debit to Accumulated Depreciation of $47,000.

Q: Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record: A.A gain on sale of $2,000. B.A loss on sale of $2,000. C.A loss on sale of $5,000. D.A gain on sale of $5,000. E.A loss on sale of $45,000.

Q: An asset's book value is $18,000 on December 31, Year 5. The asset has been depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record: A.A loss on sale of $12,000. B.A gain on sale of $12,000. C.Neither a gain nor a loss is recognized on this transaction. D.A gain on sale of $3,000. E.A loss on sale of $3,000.